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New IRS rules could mean many more taxpayers will receive a 1099-K form in the mail in January 2024. Form 1099-K Payment Card and Third-Party Network Transactions shows the business transactions a third-party payment service or card processor has paid you throughout the year. Starting in 2023, if you receive $600 or more in business payments through a service like Venmo, Cash App or Paypal—or any credit or debit card payments at all—you may receive a 1099-K.
If you're keeping good records and reporting your business income correctly, a 1099-K shouldn't add to your tax bill. It's there to help verify how much you took in throughout the year. Still, a 1099-K does give the IRS additional information about your income, and it may affect how you prepare your taxes. Here's a quick rundown on 1099-Ks.
What Is Form 1099-K Used for?
IRS Form 1099-K shows the total business payments you received from a payment service during the year. You will receive separate 1099-Ks from every payment service that processed at least $600 in payments for you in total. This includes apps like Venmo, Cash App and PayPal. It also includes any company that accepted credit and debit transactions on your behalf. Card transactions don't have a threshold; they're reported regardless of amount.
Form 1099-K reports these transactions to the IRS and your state income tax authority. You'll also receive copies to file with your taxes—and to use in calculating your business income and business taxes owed for your tax return.
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When Is a 1099-K Form Issued?
Beginning in 2023, third-party payment services are required to issue 1099-K forms to anyone who received $600 or more in third-party transactions, or any credit or debit card payments. Forms go out in January for the prior year. Copies are distributed as follows:
Copy A: For the IRS
Copy 1: For state tax departments
Copy B: For the payee
Copy 2: To be filed with the recipient's state income tax return, when required
Copy C: For the filer
Prior to 2023, 1099-Ks were only issued when a single transaction of $20,000 or more was processed, or when there were 200 or more transactions. If you've never received a 1099-K in the past, these previously higher thresholds could be why. The lower $600 threshold was originally set to go into effect in 2022, but a last-minute change in the law in December 2022 put the reporting change off until the 2023 tax year.
Form 1099-K is for business transactions. If you have a standard (personal) account, your transactions won't be reported on a 1099-K. Business income on a 1099-K applies to business accounts. However, you don't have to be a multinational corporation to have business income. Anyone who received qualifying payments for gig work, odd jobs, online sales, freelance work or other types of side businesses and used a third-party payment service or accepted credit and debit cards is likely to receive a 1099-K.
Do I Need to Pay Taxes on 1099-K Income?
You've received a 1099-K showing you had $10,000 in payments in 2023. Do you need to pay taxes on this $10,000?
When You Need to Pay Taxes on 1099-K Income
You need to pay taxes on all legitimate business income, including income shown on a 1099-K. You should be accounting for all business revenue—including cash, checks, card payments and third-party payments—as part of your regular business operations and in preparation for doing your taxes. If your bookkeeping is accurate and up-to-date, your $10,000 1099-K shouldn't be a surprise.
You do not need to add the amount shown on your 1099-K to the revenue in your books. This money should already be accounted for as part of your regular bookkeeping. Just make sure your 1099-K income adds up with what you report on your taxes: If your 1099-K shows $10,000 in payments and you report gross sales of only $2,000, you may trigger an IRS audit or other investigation.
When You Don't Need to Pay Taxes on 1099-K Income
You don't need to pay taxes on 1099-K income if the money is a refund, gift or reimbursement. Also, there are instances when 1099-K income might not be taxable—or at least not taxable for you:
- You are not the business account owner named on the 1099-K.
- You have a personal account only and should not have reportable business income.
- Your transaction record or monthly statements don't match up with income shown on your 1099-K.
Contact the payment company if you've received a 1099-K with errors. Ask them to issue a corrected form, and be sure to retain all correspondence and your corrected 1099-K.
Important tip: Going forward, don't use your business account to receive personal payments. Although you can deduct gifts or reimbursements from the total shown on your 1099-K, the discrepancy could raise red flags with the IRS. If you can, keep personal transactions to your personal account.
The Bottom Line
Although receiving a 1099-K form shouldn't affect how much tax you owe, it may add a layer of accountability—and complexity—to your tax preparation process. Now is a good time to get your books in order. If reporting your income and doing your taxes seems more complicated than in years past, you might want to work with a tax advisor. They can help you calculate your taxable income accurately, reconcile your profit and loss and stay on the right side of the IRS.