Latest Facts and News
- The IRS has delayed the new $600 reporting threshold for Form 1099-K to the 2024 tax year.
- For the 2023 tax year, the previous threshold of $20,000 and 200 transactions still applies.
- Some states have already implemented lower reporting thresholds, as low as $600.
For many self-employed individuals, small business owners, and e-commerce sellers, receiving an IRS Form 1099-K in the mailbox is very confusing. They have so many things in mind, like:
What is a 1099 K form used for?
How does it affect my taxes?
With such a peculiar name and all those details required in the form, one can understand how this form probably makes a lot of different questions arise.
So here, to make it easy for you, this is a form 1099-K published to report income from payment cards and third-party networks. But even knowing what this form is, the confusion mostly persists: When do you actually get one? Is it only because you’ve met a threshold income, or are there other qualifiers involved? And once you have that form in hand, what do you do with it?
This blog post will take you through everything on your mind on the topic of the 1099-K, answering what you care about most, and helping you understand how this form will make sense in your broader tax picture.
Purpose of Form 1099-K
Form 1099-K is an official IRS form that shows the money you received for selling things or providing services during the year.
You get this form from places like payment card transactions companies, third-party network payments apps, and online stores These companies send the form to both you and the IRS to keep track of your income.
Now that we know what this form is, let’s see what is a 1099 K form used for:
- Show Your Earnings: This helps you see how much money you made from your business or sales.
- Fill Out Your Taxes: Use the information on the 1099-K to complete your tax return.
- Check Your Tax Bill: This helps you estimate how your earnings will affect the amount of tax you need to pay.
Keep in Mind →Money you receive from family or friends for personal reasons shouldn’t be included on Form 1099-K. |
Who Receives Form 1099-K?
Form 1099-K is sent to diverse businesses and individuals who accept payments through credit cards or online payment platforms. Here are some examples of who should know “What is a 1099 K form used for?” necessarily:
- Freelancers and Contractors: These are people whose paychecks go through PayPal or other online payment apps.
- Online Sellers: These people sell products through networks such as Etsy, eBay, or Amazon.
- Rideshare Drivers: These are Uber or Lyft drivers who get payments from credit cards from their fare clients.
- Small Businesses: These include any business that accepts payment by cards for their goods or services, for example, retail shops or restaurants.
- Professionals: They include service providers such as consultants, photographers, or graphic designers who charge using methods where the payments are through online payment sites or through credit cards.
Every entity and person gets a different Form 1099-K from each individual payment processor they use; it will, therefore, enable both businesses and IRS to understand what is a 1099 K form used for. Furthermore, it will also keep track of the income regarding such transactions.
If there are doubts related to receiving a 1099-K or general questions regarding the report, contacting the Hopkins CPA Firm would be a good idea.
We can organize for you a detailed understanding of your forms and even ensure the proper filing of your taxes.
What is the 1099-K Threshold, and What Are the Latest 1099-K Rules?
A threshold is a specific point or level at which something begins to happen or take effect. In the context of the 1099-K, the threshold is the minimum total amount of transactions that trigger the mandatory tax reporting.
Here’s a simple guide to help you know when you need to have a clear understanding of what is a 1099 K form used for when you reach the threshold and what the most recent rules are:
Current Thresholds (for the 2024 Tax Year, Filing in 2025)
If you sell items or services using a payment app or online platform, you will receive Form 1099-K to file your taxes in 2025 if you have more than $5,000 in gross payments for the year 2024.
Upcoming Changes
The IRS has reduced its tax reporting thresholds for the next few years, in accordance with the American Rescue Plan Act.
- 2025 Tax Year: The threshold will drop to $2,500 in total payments.
- 2026 Tax Year and Beyond: The threshold will be $600 in total payments.
Important Points to Remember
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Check Your Form 1099-K for Accuracy
It is very important that you report your income accurately on your tax return in the meantime while you are figuring out what is a 1099 K form used for. Here’s a simple guideline on how to help you further understand how to it, though:
- Payee’s Taxpayer Identification Number (TIN)
Payee’s Taxpayer Identification Number (TIN) actually means the last 4 digits of your Social Security number (SSN), Individual Taxpayer Identification Number (ITIN), Adoption Taxpayer Identification Number (ATIN), or Employer Identification Number (EIN).
However, Form 1099-K is to be amended if both name and TIN appear on Form 1099-K, but the business income is reported using Form 1120, 1120-S, or 1065.
- Gross Payment Amount (Box 1a):
This shows the total payments you received through payment cards and third-party network transactions. It does not include fees, credits, refunds, shipping, cash equivalents, or discounts.
Note that these excluded amounts are not taxable income and can be deducted from the gross transaction amount.
Reporting 1099-K Income on Your Tax Return
As we already know, no matter how you earn or what the source of your income is, you should always file a return. This helps prevent any kind of penalty or interest in the future.
Keeping that in mind, the 1099-K should also be reported and it depends on the same criteria of how you earn. Below we have created a detailed guide to make you understand the process based on the situation:
A. Selling Personal Items
Individuals who sell items for personal use, like cars, furniture, or jewellery also think of what is a 1099 K form used for them. Well, they need to report this form also.
The outcome of selling the items can be a profit or loss. Let’s see for both options:
- When Sold at a Loss: If you sold a personal item for less than you paid for it, you don’t owe taxes on the loss. You can report in two ways:
- Use Schedule 1 (Form 1040): Enter the total amount from Form 1099-K on Line 8z as “Personal Item Sold at a Loss.” Enter the same amount on Line 24z to offset the income, making the net effect $0.
- Use Form 8949 and Schedule D: Report the sale on Form 8949. Transfer the information to Schedule D. This won’t affect your taxes.
- When Sold at a Gain: If you sold a personal item for more than you paid, the profit is taxable. You can use the below-given form to report:
- Form 8949: Report the details of the sale.
- Schedule D (Form 1040): Report the gain as a capital gain.
Note: If you sold a personal item for less than you paid, you don’t owe taxes on the loss.
B. Selling Goods, Providing Services, or Renting Property
Gig workers, freelancers, small business owners, and those renting out the property should also think of what is a 1099 K form used for them. Similar to the above they should also report this 1099-K form. Here’s how different types of entities should report this income:
- For Self-Employed Individuals (Schedule C):
- Enter total income from Form 1099-K on Schedule C, Line 1.
- Deduct business expenses to calculate your net profit.
- For Partnerships (Form 1065):
- Report income on the partnership return.
- Partners report their share on their individual returns.
- For S Corporations (Form 1120-S):
- Report income on the corporate return.
- Shareholders report their share via Schedule K-1.
- For C Corporations (Form 1120):
- Report income on the corporate return.
- Shareholders report any dividends received.
- For Rental Income (Schedule E or C):
- Report rental income and expenses to calculate net rental income.
Concluding Thoughts!
To be here at the end of this blog, we have understood what is a 1099 K form used for, and also that handling it is not rocket science, but it does take some careful attention.
The very first thing to do is compare the numbers from the record and the form received. And when I say this, I really mean, compare them line by line. Trust me, catching a discrepancy now saves you a ton of headaches later.
When you’re filing your return, here’s another critical tip: make absolutely sure you’re not reporting income that isn’t actually income. Personal gifts, that dinner bill your friend reimbursed you for, money from selling your old furniture—these aren’t taxable. Include them accidentally, and you’ll be paying taxes on money you never really earned.
If you are still unsure whether this form is for you or not, reach out to Hopkins CPA Firm. Our experienced team is here to make you clearly understand what is a 1099 K form used for in your specific scenario and make tax season stress-free for you.
FAQ's
Can I receive a 1099-K for personal transactions?
Nope, 1099-K forms aren’t for casual transactions like splitting dinner bills or selling an old lamp. Knowing what is a 1099 K form used for is a very important topic for you. These forms are strictly for businesses or people doing significant online sales. If you’re not running a business or processing lots of digital payments, you won’t see a 1099-K in your mailbox.
How do I reconcile my 1099-K with my actual business income?
Recounciling your 1099-K is more like balancing your checkbook. Just like you compare your checkbook records with your bank statement to make sure they match. Start by taking the form from your payment platform and matching each line with your own business records. Then, check your total sales, the transaction fees, and your account for any kind of refunds you received or any kind of cancellation made.
Make sure every dollar matches up. If numbers look different, write down the differences. When in doubt, we can help you sort out the details and ensure everything is accurate.
What should I do receive an incorrect 1099-K?
If your 1099-K has mistakes, don’t stress. First, contact the payment platform that issued the form and explain the specific errors. Ask them to send a corrected version. Keep records of all your communications about the form.
If they’re not helpful, talk to our tax professional. We will make you understand what is a 1099 K form used for. We follow the IRS guidance and help you with a proper procedure. The most important rule is to never use a form that you know is incorrect when filing your taxes.
Are there any exemptions from 1099-K reporting?
Some key exemptions include:
- Personal transactions (gifts, reimbursements)
- Selling personal items at a loss
Important point: The IRS allows an exception for small financial transactions, meaning you don’t report money exchanges below certain limits. Before 2023, this meant transactions under $20,000 with fewer than 200 exchanges were exempt from reporting. The IRS is now adjusting these thresholds, but the basic idea remains: small, casual money transfers don’t require official tax paperwork.
How does Form 1099-K differ from other 1099 forms?
What makes the 1099 K unique among all the other 1099 forms is that it captures the electronic payment processing made with the help of credit cards or online platforms, which no other form does.
Other 1099 forms like MISC and INT report miscellaneous income and freelance earnings.
To know more about what is a 1099 K form used for in detail, contact the Hopkins CPA Firm and have a better understanding of the difference here.
