Understanding Your 1099-K Form

The landscape is shifting for business owners, self-employed individuals, and freelancers in the upcoming tax year. This year and in the coming years, you’ll probably receive Form 1099-K during tax season. So what exactly is this form, and how does it relate to you? Let’s dive in.

What Is Form 1099-K?

Form 1099-K is an IRS document used to report the following:

• Credit card transactions
• Debit card transactions
• Network payments for third parties

In past years, the minimum reporting thresholds for these transactions were quite high. However, as of 2023, the IRS has shifted to the minimum transaction requirements of $600, regardless of the number of individual transactions.

Why Is Understanding Your 1099-K Form Important?

It’s important to gain a thorough understanding of your 1099-K form and its accompanying requirements due to the recent changes by the IRS.

The shift in the required reporting threshold affects a number of individuals, including:

• Small business owners
• Freelancers
• Independent contractors
• Self-employed professionals

If you’re one of these people, you’ll likely receive Form 1099-K.

The Purpose of Form 1099-K

Form 1099-K first came about in 2008 during the Housing and Economic Recovery Act, although it doesn’t actually relate to housing.

The form was created in 2012 for the previous tax year to ensure that the appropriate individuals and organizations properly report the entirety of their income.

Form 1099-K applies to credit card companies like Visa and Mastercard, as well as third-party processors like Amazon, Venmo, and PayPal, to report the transactions businesses conduct using these services.

If your business accepts online or credit card payments, you’ll likely receive a Form 1099-K from every payment processor you use for your sales transactions.

2022 Threshold for Form 1099-K

You’ll most likely receive a 1099-K form for 2022 by the end of January 2023, if:

• You received payments that originated from card transactions, like debit, gift, credit, or prepaid cards, during the last year
• You’ve processed payments using third-party payment platforms like Venmo, eBay, or Etsy

For the 2022 calendar year, the thresholds to receive a 1099-K include:

• More than 200 total transactions
• Gross payments exceeding $20,000

As mentioned, these parameters will be shifting in 2023. Starting in the new fiscal year, you’ll receive Form 1099-K if your gross payments have exceeded at least $600 for any number of transactions.

Be Cautious About Non-Taxable Payments

If you’re a business owner, a gig worker, a freelancer, or a self-employed professional who relies on a card reader or third-party payment processor, be cautious about using those elements for purposes unrelated to your business.

There’s a chance that these non-taxable payments may show up on your Form 1099-K if the payment processor you’re working with doesn’t have an internal system allowing them to differentiate between business and non-business transactions.

Get Help with Your 1099-K Form

Understanding your 1099-K Form can be challenging, as so many elements of tax season often are. At STG Accounting, we help business owners like you navigate the obstacles of tax season every year.

Want to learn how we can help your small business? Contact us today!