Where Does 1099-K Go on Form 1040?

Form 1099-K, Payment Card and Third Party Network Transactions, is an informational document that reports the gross amount of payments you received from processors like PayPal or platforms such as Etsy. While this form helps the IRS track income, the amount shown is not automatically taxable. How you report these figures on your Form 1040 tax return depends on the nature of the transactions.

You will receive a Form 1099-K if the payments you received exceed a certain threshold. For the 2025 tax year, the reporting threshold is $2,500. This is a change from the $5,000 threshold in place for 2024, as the IRS continues a phased approach to lower the reporting limit.

Understanding Your Form 1099-K Income

Before reporting the income, you must analyze and categorize the payments you received. The first step is to reconcile the gross amount shown in Box 1a of the form with your own records. This figure represents the total value of all transactions processed for you and does not account for any fees, credits, shipping costs, or refunds, which you will account for separately. A single Form 1099-K can represent a mix of different transaction types that have distinct tax treatments.

Business Income

Money earned from an ongoing trade or business activity is considered business income. This applies to freelancers, independent contractors, gig workers, and anyone with a side hustle operated with the intention of making a profit. If you drive for a ride-sharing service, sell goods online, or provide services as a consultant, the payments you receive are business income.

You will report this income on Schedule C, Profit or Loss from Business, which is filed with your Form 1040. Begin by entering the gross business income on Line 1 of Schedule C. This amount should include the relevant portion from your Form 1099-K as well as any other business income you received, such as cash or checks.

Next, you will deduct your business expenses in Part II of Schedule C. This is where you account for costs that were not subtracted from the gross amount on the 1099-K. Common expenses for an online seller or gig worker might include:

• Platform fees
• Payment processing fees
• Shipping costs
• The cost of goods sold
• Advertising
• Home office expenses

After subtracting all your expenses, the resulting figure is your net profit or loss. This net amount from Schedule C is then carried over to Schedule 1 of Form 1040, where it is combined with other income sources to calculate your adjusted gross income.

Hobby Income

Hobby income comes from an activity that you do not engage in for the primary purpose of making a profit, such as occasionally selling handmade crafts to friends. You must report the gross income from the hobby on Schedule 1 (Form 1040) as “Other income.” Due to the Tax Cuts and Jobs Act of 2017, you cannot deduct any expenses related to your hobby for tax years 2018 through 2025. This means you must pay tax on the full amount of hobby income you receive.

Sale of Personal Items

Many people receive a Form 1099-K for selling used personal belongings online, such as furniture or clothing. If you sold a personal item for more than you originally paid for it, the gain is taxable. This gain, which is the sale price minus your original cost, is reported on Form 8949, Sales and Other Dispositions of Capital Assets, and then flows to Schedule D, Capital Gains and Losses.

If you sold a personal item for less than your original cost, the loss is not deductible, and you do not report the income from the sale. To prevent the IRS from questioning why the income on the 1099-K was not reported, you can make two offsetting entries on Schedule 1 (Form 1040). This shows the income and then zeros it out. You must keep records of your original purchase price to prove you sold the item at a loss.

Non-Taxable Transactions

A Form 1099-K may mistakenly include non-taxable transactions, such as personal payments from friends for a shared dinner bill or cash gifts. These payments are not income and are not subject to tax. You do not need to include these amounts on any form, but you should keep records like payment app notes or bank statements that prove the non-taxable nature of these transactions in case the IRS inquires about the discrepancy.

Correcting an Inaccurate Form 1099-K

If you receive a Form 1099-K with factual errors, such as an incorrect gross amount or payments belonging to someone else, you must address it to avoid incorrect tax calculations. The first step is to immediately contact the payment settlement entity that issued the form. The issuer’s name and contact information are in the upper-left corner of the Form 1099-K.

Explain the error and request that they issue a corrected Form 1099-K, keeping copies of all correspondence for your records. If you cannot get a corrected form, you must still account for the discrepancy on your tax return. Report the full, incorrect amount from the 1099-K on the appropriate line of your return.

Then, on a separate line, subtract the amount that was included in error. For example, on Schedule 1 (Form 1040), you would report the incorrect income on Line 8z, “Other Income,” and then subtract the same amount on Line 24z, “Other Adjustments,” with a description like “Form 1099-K Received in Error.” This ensures your tax liability is correct while acknowledging the amount the IRS has on record.