Why Did I Receive a 1099-K From eBay?

Platforms like eBay are classified by the Internal Revenue Service (IRS) as third-party settlement organizations (TPSOs). This designation means they must report the payment transactions of their users to the government. The document used for this is Form 1099-K, Payment Card and Third Party Network Transactions, which summarizes a seller’s gross payment volume for the calendar year.

The Thresholds for Receiving a Form 1099-K

The requirements for issuing a Form 1099-K have been a source of confusion due to recent and pending changes. For the 2023 tax year, the federal reporting threshold reverted to the previous standard: gross payments exceeding $20,000 and more than 200 transactions. The IRS has announced a phased-in approach for lowering this threshold, and for the 2024 tax year, a Form 1099-K will be issued to sellers who receive over $5,000 in gross payments, with no minimum transaction count.

This phased approach is a transition toward a lower threshold established by the American Rescue Plan Act of 2021. That law lowered the reporting requirement to $600, but the IRS has delayed its implementation. The plan is to lower the threshold to $2,500 for the 2025 tax year, with the $600 threshold expected for 2026 and beyond.

Sellers must also be aware of their state’s specific tax laws. Some states have established their own reporting thresholds that are lower than the federal requirement. For example, a state might require platforms to issue a 1099-K for sellers who exceed $600 in sales, regardless of the federal delay. Because of these local rules, a seller might receive a 1099-K from eBay even if their sales figures do not meet the current federal reporting level.

Understanding Your eBay Form 1099-K

When you receive a Form 1099-K, the figure in Box 1a reports the gross amount of payment transactions. This number represents the total unadjusted dollar amount of sales processed on your behalf. This figure is not your net profit and does not account for any of your expenses. The IRS requires this gross amount to be reported before any adjustments.

The total in Box 1a includes several components of your sales. It is comprised of the item’s sale price, any shipping charges paid by the buyer, and any sales tax that eBay collected and remitted as a marketplace facilitator. This means the number on the form is likely much higher than the amount you actually received in your bank account from your sales activities.

This gross figure does not subtract the various costs associated with selling on the platform. Expenses such as eBay’s final value fees, payment processing fees, and the cost of shipping labels you purchased are not deducted from the Box 1a amount. The form does not reflect any refunds you may have issued or the original cost you paid for the items you sold.

Reporting eBay Income on Your Tax Return

The receipt of a Form 1099-K does not automatically mean you owe taxes on the full amount reported. All income is generally taxable whether you receive a form or not, and the 1099-K is an informational tool to assist in accurate reporting. Your actual taxable income is your net profit, which is calculated by subtracting your allowable business expenses from your gross income. The figure in Box 1a of the 1099-K serves as the starting point for this calculation.

To determine your net profit, you must track and deduct all ordinary and necessary expenses related to your selling activities. Common deductions for eBay sellers include:

• The cost of goods sold (what you paid for the inventory)
• Final value and other eBay fees, and payment processing fees
• Shipping costs, which include postage, boxes, and other packaging materials
• Mileage for trips to source inventory or to the post office
• Advertising costs and fees for business-related software or subscriptions

For most individuals selling online as a business, this income and associated expenses are reported on Schedule C (Form 1040), Profit or Loss from Business. On this form, you report the gross receipts from your sales, which should align with your 1099-K, and then list your expenses to determine your net profit or loss.

Ensuring Your eBay Account Information is Correct

To ensure tax forms are issued correctly, it is important that your account information on eBay is accurate and up to date. eBay is required to use the legal name and Taxpayer Identification Number (TIN) on file to prepare your Form 1099-K. An individual’s TIN is typically their Social Security Number (SSN), while a business may use an Employer Identification Number (EIN).

You can verify this information by logging into your eBay account and navigating to the account settings or personal information section. It is good practice to review this periodically, especially if you have recently moved or changed your legal name or business structure. An incorrect TIN on your 1099-K can cause a mismatch with IRS records, potentially leading to tax notices or payment holds.

If you receive a Form 1099-K with an incorrect name or TIN, you should contact eBay support immediately to request a corrected form. Providing them with the correct information will allow them to issue a revised 1099-K to both you and the IRS. Addressing these discrepancies promptly helps prevent complications during tax filing.