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What is 1099-K? Definition and who files it
IRS Form 1099-K
Taxes are a fact of life, especially for business owners. Dealing with taxes can be daunting, particularly if you don’t have experts to submit them for you like large companies do. You’ll need to know what forms to complete and how to maintain tax compliance.
In the United States, this means familiarizing yourself with the Internal Revenue Service’s regulations. There’s one form in particular to take notice of: Form 1099-K. This form is crucial for any business that accepts payment via credit cards or third-party processors.
So, what is a 1099-K? Let’s dive in.
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Defining Form 1099-K
Form 1099-K is a U.S. tax document that reports income from third-party payment processors (e.g., PayPal or Venmo) and credit cards (e.g., Mastercard or Visa). This also includes income from online marketplaces and crowdfunding platforms. Form 1099-K’s full name is Payment Card and Third-Party Network Transactions.
What is a 1099-K form used for? Its purpose is to track the income of 1099 employees, small businesses, gig workers, and freelancers to ensure that their earnings are correctly reported to the IRS.
When was Form 1099-K implemented?
Form 1099-K was first instituted in 2012 as part of the 2008 Housing and Economic Recovery Act (even though it’s not related to housing) to be applied to the 2011 tax year.
This was in response to a massive $450 billion in underpaid taxes—a 17% noncompliance rate. The form is one way to increase tax law adherence.
When should a 1099-K be filed?
Companies that process payments—such as credit card issuers, digital payment platforms, and online marketplaces—must complete Form 1099-K and submit it to the IRS by the last day of February (if filing by paper) or by March 31 (if filing electronically) in the year following the transactions.
How does a 1099-K work?
A 1099-K works by cataloging the annual gross transactions made through third-party processors or payment cards.
It covers all business transactions but doesn’t include nontaxable payments made via a payment card or processor. Imagine you stop at the grocery store on the way to visit your friend, and they ask you to get a few items for them. They then pay you back using Venmo. This would not need to be reported on a 1099-K.
It’s best to keep business payments separate from personal ones so you can distinguish between taxable and nontaxable payments. You don’t want to pay the 1099-K tax rate on transactions between family and friends.
You should receive Form 1099-K from your payment card or payment processing company by January 31 each year. This form is also sent to the IRS for its records, ensuring you report all of your income. Each company will send its own 1099-K. So, if you sell on Amazon and Etsy, fundraise on Kickstarter, and list a property on Airbnb, expect to get a separate form from each company.
Do I have to report 1099-K income?
So, who needs a 1099-K? The following people are likely to need this form for their annual tax filing:
- Freelancers accepting online payments: Maybe you’re a copywriter, musician, or web designer doing part-time or freelance work for various companies. No matter what you do, you’ll need a 1099-K if you’re paid via an online processor like PayPal.
- Small business owners processing credit card transactions: Do you run a shop, salon, or similar in-person business and accept direct credit card payments? You’re a candidate for a 1099-K.
- Gig economy workers: Ridesharing and delivery services like Uber and Lyft must send you the form if you meet certain transaction thresholds (more on that in a moment).
- Online sellers: You sell through a marketplace like Etsy, Amazon, or eBay.
- Rental property owners listing their properties online: Maybe you rent out a holiday home through Airbnb or VRBO. Expect a 1099-K if you meet the requirements.
What is the 1099-K threshold?
The 1099-K threshold varies from state to state and year to year. These thresholds only apply to third-party payment processors. Payment card transactions, such as credit card swipes, do not have a minimum requirement.
In the 2024 tax year, the threshold is $5,000 across any number of transactions. The IRS is applying a phased-in approach as they move to a $600 minimum. Note that these are only thresholds for receiving Form 1099-K. The IRS requires taxpayers to report and pay tax on all income.
In previous years, the 1099-K threshold was $20,000 across at least 200 distinct transactions. This steep decline is due to the American Rescue Plan Act of 2021, wherein Congress changed the tax reporting threshold.
It’s unclear when the IRS will institute the $600 threshold—it hasn’t yet announced plans to do so.
Differences between 1099-K, 1099-NEC, and 1099-MISC
Comparing 1099-K versus 1099-NEC versus 1099-MISC is pretty straightforward. Here are the primary differences:
- 1099-K: Third-party and card payment transactions. This form is for gig economy workers, freelancers, and small businesses that accept these payment types.
- 1099-NEC: Non-employee compensation. The IRS reintroduced this form in 2020 to handle non-employee compensation, such as payments to independent contractors, freelancers, consultants, and U.S. nationals living abroad.
- 1099-MISC: Miscellaneous income, such as rent and prizes. Before the introduction of the 1099-K, many business owners had to send this form to their suppliers if they paid them $600 or more in a tax year. Now, anything on the 1099-MISC that’s also on the 1099-K must only be reported on the latter form to avoid double taxation.
Stay compliant with Oyster
Managing tax requirements can be overwhelming, especially when you run a business that operates in multiple countries. Fortunately, Oyster is here to simplify your international payroll and tax compliance. With our global employment platform, you can handle complex tax forms and third-party payments in over 180 countries, ensuring that you comply with international tax regulations.
Let Oyster take care of the details so you can focus on growing your business.
FAQ’s
I got a 1099-K, but I’m not a business. What am I supposed to do with it?
This is one of the most common “wait, what?” moments. A 1099-K doesn’t automatically mean you run a business, it means a payment platform reported payments tied to goods or services under your profile. Your job is to classify what those payments actually were. Business or self-employment income is typically reported as such (often on Schedule C), while personal sales may be taxable only on any gain, and reimbursements or gifts generally aren’t income at all. The practical move is to reconcile the form line-by-line against your own records, then document why certain deposits are not taxable (for example, a repayment). If the 1099-K includes personal activity, you’ll want clean backup in case the IRS matches the form to your return and asks questions.
Who issues Form 1099-K, and why did I get multiple 1099-Ks?
You don’t “file” a 1099-K yourself, and your client usually doesn’t issue it, either. The form is issued by the payment settlement entity, meaning the card network processor or the third-party settlement organization (think payment apps and online marketplaces) that actually processed the transactions. If you took payments through multiple platforms in the same year, you can receive multiple 1099-Ks, and each one is reported to the IRS under your taxpayer information. That’s why it’s critical to make sure you’re not missing one, and also why you should expect the IRS to already have visibility into those totals.
How do I report 1099-K income without paying tax on the full gross amount?
A 1099-K reports gross payments, not profit. That’s the trap that causes panic, especially for eBay sellers, creators, and gig workers. If you sold goods, your taxable amount is generally your profit after costs, not the total that ran through the platform. If you provided services, your taxable amount is your income net of eligible business expenses. In both cases, you need records that support what portion of the gross total is actually taxable, and that usually means keeping receipts, invoices, platform statements, shipping fees, refunds, and any cost basis documentation for items you sold. The form itself is just a reporting mechanism; your tax return is where you reconcile it to reality.
What should I do if my 1099-K is wrong (refunds, chargebacks, duplicates, or personal payments)?
Don’t ignore it and hope it disappears. Start by comparing the 1099-K totals to your platform’s annual statements, then identify what’s driving the mismatch, such as refunds, chargebacks, cancelled orders, fees, or personal transfers that were incorrectly tagged. Next, contact the platform that issued the 1099-K and ask what their correction process looks like, because they’re the one that can reissue a corrected form to you and the IRS. If you can’t get a correction in time, you may still need to file accurately using your own documentation and be prepared to explain the difference if the IRS flags the discrepancy. This is also why separating personal and business payment flows isn’t “nice to have,” it’s how you prevent tax-season chaos.
I pay contractors through PayPal, Stripe, or a marketplace. Do I need to send a 1099-NEC, or will the 1099-K cover it?
This is where teams accidentally double-report. Generally, if payments to a contractor are made through a third-party payment network that issues a 1099-K, that platform may handle the reporting, and you may not need to issue a 1099-NEC for those same payments. But the details depend on how the payment was processed and whether it’s considered a reportable payment transaction by the IRS. If you’re paying a mix of methods, like some via a platform and some via ACH or check, you can end up with split reporting obligations. When in doubt, align Finance and your tax advisor early, because “we’ll sort it out at year-end” is how you end up with mismatched forms and contractor frustration.
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About Oyster
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Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
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