Form 1099-K | Payment Card and Third-Party Network Transactions

Form 1099-K   |   Payment Card and Third-Party Network Transactions

Form 1099-K, Payment Card and Third-Party Network Transactions, is used to report transactions that are made via payment settlement entities. If you use a service to process credit or debit card transactions, that service is a payment settlement entity, and the amount of those types of transactions for the year should be reported on the Form 1099-K.

When is Form 1099-K Issued?

Not everybody who uses such a service will receive a Form 1099-K, because technically the form is not required to be issued unless:

1. The service processed more than $20,000 worth of payments, and
2. The service processed more than 200 individual payments.

If you do not meet both of those requirements you are not required to be issued a Form 1099-K. Many entities that process card payments on behalf of their customers will issue a Form 1099-K when the amount of payments and number of payments are far below this threshold. Some will even issue the form when there is a little as one transaction processed during the year.

Taxation of Amounts from Form 1099-K

Most individuals’ Form 1099-K report payments to their trade or business. As such, the income for sole-proprietors is reported on their Schedule C as gross receipts subject to the self-employment tax.

Partnerships and corporations would report those amounts in a similar manner on their returns.

IRS Enforcement of Form 1099-K Reporting

IRS has started contacting taxpayers whose gross business income is less than the amount reported on the Form 1099-K.

Avoid Accepting Nontaxable Payments via Credit or Debit Card

One caveat to be aware of is that it may not be advisable to accept non-business payments using a card reader. For example, if you split the rent with your roommate, it’s probably not a good idea to have them pay you for their half using their debit card and a smart-phone card reader, because the processor will not be able to differentiate the payment and may issue a Form 1099-K including the rent payments.

Splitting rent with your roommate is not generally a taxable transaction, but the IRS will probably send you a notice if you’re issued a Form 1099-K and that amount does not appear anywhere on your return.