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Form 1099 k is relatively new because its thresholds changed recently. While many business owners received one in the past, more business owners and independent contractors will receive one this year.
Here's what you must know about the 1099 requirements.
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Anyone who collects credit card payments either in-person or online must report the payments on their tax returns. Before this year, the burden fell on the business owner or contractor to keep track of the transactions and report them on their income tax return.
Today, the laws changed, requiring payment settlement entities to report payments at a much lower threshold. This means almost everyone who collects credit card payments will receive Form 1099 k to report on their tax return.
Since you must report all income earned whether you received a form or not, the 1099 form makes your life a little easier when filing your tax returns.
What Is Form 1099-k?
Form 1099-k reports business income earned from credit or debit card payments. If you had third-party network transactions for your business throughout the year, you'll receive the 1099 k form that you must include in your tax returns.
While the form is meant for business income, if you use the card reader for any purpose, it will get included in your report. If the income reports on your 1099 form, you must report it. Therefore, it's important to use the reader only for business transactions, not personal transactions, or you risk double paying taxes.
Form 1099 Purpose
Form 1099 k began in 2012 for the 2011 tax year to ensure all businesses report payments earned from all payment settlement entities. It resulted from the 208 Housing and Economic Recovery Act, even though it doesn't relate to housing.
The IRS created the act to ensure every individual (business or otherwise) reports all reportable payment transactions on their tax returns. Before this act, the threshold was much higher, making it harder to determine if taxpayers reported all of their income.
Today, you'll receive a 1099-k form from all parties, including Mastercard, Visa, PayPal, Amazon, and any other third-party entities, if you meet the new threshold.
While it sounds like a hassle, it makes reporting all revenue considered taxable income easier, so you pay the appropriate tax liabilities and reduce your risk of an audit.
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Who Gets a 1099?
Any business or individual that receives payment transactions via a credit or debit card will get a 1099 unless they don't bring in enough money. However, some companies send a 1099 k no matter how much you earn, so they cover their bases.
Since you must report all income earned, it's not a bad thing to receive a 1099 form for any income you receive.
IRS $600 Rule
The 1099-K requirements for 2022 and beyond have a $600 threshold to receive Form 1099 k to report business income and any number of transactions. Before 2022, the rule was that any business receiving gross payments over $20,000 and 200 or more transactions received the form.
This means you could receive one credit card payment and receive Form 1099 k. Some companies, however, will hold off unless you earn the IRS $600 reporting limit, but they don't have to keep track of the number of transactions because they don't matter any longer.
1099 Filing Requirements
If you receive a 1099-k form, you must include the income reported on it and any other revenue earned from other sources, including cash or checks. Keep in mind if you accept any payments that aren't taxable, they will be included in your 1099 k form. Don't use your business card reader for anything except business income.
It's best to keep your own record of transactions so you know how much income you earned and you can compare it to the reported income on your 1099 k. Human error happens, so make sure all information matches. If you find any information is incorrect, contact the payment settlement entities or other entity that issued the form for a corrected form. Be sure you have proof of your gross payments received from the entity to prove the mistake.
How to Get a 1099 Form?
Any payment settlement entity you used during the year must send you a 1099 form by January 31 following the tax year. So, for example, for tax year 2022, you'll receive your 1099 forms by January 31, 2023.
Some entities will send you a form even if you earned much less than the $600 threshold or if you had one credit, debit, or gift card transaction.
If you don't receive a form by the deadline but think you should have, contact the payment settlement entity and ask about its whereabouts. The entity must also send a form to the IRS. Just because you didn't receive a form doesn't mean they didn't issue one, so always double-check.
Who Issues 1099-K Forms?
You'll receive Form 1099 k from each entity you used to process credit card transactions. Each credit card company and third-party network transactions company will send you the form for the payments collected throughout the year.
Keep track of all third-party settlement organizations and payment card transactions you use throughout the year to ensure you receive forms from every entity.
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When Is a 1099 Required?
The IRS requires all businesses that receive payments via credit or debit cards during the year receive a 1099. The threshold is $600, which most companies will earn, but some entities issue the 1099 even if you don't reach that threshold.
Since you're supposed to report all gross receipts on your income tax return, it helps to receive the form, so you make sure you report all payment card transactions, no matter the amount received.
How to Fill Out a 1099 Form
Filling out form 1099 k is simple, but here are some tips.
- Include the filer's name, address, and phone number
- The form must include both the payee's and filer's tax identification number
- Include the payee's name, address, and phone number
- Indicate whether the filer operates as a payment settlement entity or electronic payment facilitator
- Report whether the transactions were third-party network transactions or payment card transactions
- Enter the total gross payment amount
- Enter the total of any card not present transactions
- Provide the merchant category code
- Enter the number of transactions
- Indicate any taxes already withheld
- Break down the income earned by month
- Provide the state name, state code, and state income taxes withheld
1099 Late Filing Penalty
Failing to file a 1099 on time incurs a $50 to $100 penalty, depending on how late it is. There is also a $250 penalty for not filing the 1099 form.
New 1099 Rules 2022
The American Rescue Plan Act significantly reduced the threshold required to send Form 1099 k. There is no longer a transaction quantity requirement, and any payments over $600 must incur a form.
This change became effective as of December 31, 2021. This means more business owners, sole proprietors, and contractors will receive a form because of the $600 tax rule.
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1099-k Form FAQ
1099 K vs. 1099 Misc: What's the Difference?
1099 Misc forms report any income earned as an independent contractor. It shouldn't include any income reported on the 1099 k, though. The IRS has directed payment settlement entities to report credit card transactions on 1099 k and not 1099 Misc.
How Do I Report 1099-K Forms on My Tax Return?
If you operate as a sole proprietor, you'll report your 1099 k income on your Schedule C. If you operate as a corporation or partnership, report it on Form 1120, 1120s, or 1065.
How Do I Correct Information on a 1099-K?
If you have an issue with the information reported on your 1099 k, contact the issuer to discuss the issue. They should provide a corrected form if they find they made a mistake.
How Do I Offset My 1099 Income?
To offset your 1099 income, you'll need to be eligible for tax deductions. Most business owners, however, are eligible for many tax deductions. Consult with your tax advisor to ensure you're taking advantage of them.
What Is a 1099-k Form: The Bottom Line
Form 1099 k makes it easier to report your taxable income. It's a way to double-check your accounting and ensure you pay your appropriate tax liability. Make sure you receive forms from all entities, and if you don't, contact them immediately so you can report your taxes correctly.