Quick snapshot

Form 1099‑K is the IRS information return that payment processors (credit‑card companies and third‑party settlement organizations, like PayPal or Venmo) file to report gross payments they process for sellers. The American Rescue Plan Act of 2021 lowered the statutory reporting threshold for third‑party networks to $600. Because implementation timing and platform practices changed over 2022–2024, many more small sellers now get a 1099‑K than under the old $20,000/200‑transactions rule. (See IRS: About Form 1099‑K.)

This article explains what changed, who is likely to receive a 1099‑K, why a 1099‑K is not the same as taxable profit, and practical steps small sellers should take to avoid surprises when you file taxes.

Who must issue and who receives a 1099‑K?

  • Payment card processors (credit and debit card companies) report transactions they process for merchants on Form 1099‑K. There is no high‑value threshold for card transactions—processors report applicable card payments they handle.
  • Third‑party settlement organizations (TPSOs) — platforms that facilitate payments between buyers and sellers — report payments they process when they meet the statutory threshold. After the American Rescue Plan Act of 2021, that statutory threshold was reduced to $600 for aggregate payments for goods or services in a calendar year (subject to implementation timing and platform practices). (IRS, About Form 1099‑K.)

Note: Personal transfers (gifts, reimbursements between friends) that are not payments for goods or services should not be reported as business receipts. Many platforms rely on seller and buyer transaction classifications to determine reportability.

Why the change matters to small sellers

  1. More sellers receive information returns: Small or occasional sellers who previously never received a 1099‑K now may receive one when annual gross receipts processed through a platform reach the $600 level.
  2. Matching and IRS notices: The IRS uses third‑party information returns to cross‑check tax returns. If a 1099‑K shows more gross receipts than you report, you may receive an IRS notice seeking explanation or additional tax.
  3. Gross receipts vs. taxable profit: 1099‑K reports gross payments processed, not your net income. Refunds, customer returns, platform fees, shipping costs, and cost of goods sold reduce taxable profit—but they do not automatically change what the processor reports.

What to do if you receive a 1099‑K

  1. Don’t panic. Receiving a 1099‑K does not mean you owe tax on the full amount reported. It means the IRS has a record of gross payments processed in your name or account.
  2. Reconcile the 1099‑K to your records. Match gross receipts on the 1099‑K to your bank deposits, platform statements, and sales ledger. Track refunds, chargebacks, platform fees, and shipping costs separately so you can calculate net profit accurately.
  3. Keep supporting documentation. Maintain invoices, receipts for purchases, shipping records, and logs of refunds and fees. These records support the deductions and adjustments that reduce taxable income (see IRS guidance on recordkeeping).
  4. If the 1099‑K is wrong, contact the payment processor first. Platforms can issue corrected forms when they made reporting errors. Keep written records of communications.
  5. Report your income correctly on your tax return. If you’re a sole proprietor or a single‑member LLC, report business receipts on Schedule C (Form 1040). Net income after ordinary business deductions is subject to income tax and possibly self‑employment tax. If unsure, consult a tax professional.

(For a deeper checklist for filing after receiving a 1099‑K, see our guide: Filing Taxes After Receiving a 1099‑K: What You Need to Know.)

Common misunderstandings and traps

  • “I got a 1099‑K, so I owe tax on everything.” False. The form reports gross payments; you owe tax on net taxable income after allowed deductions. Keep records to substantiate costs.
  • “If I don’t get a 1099‑K, I don’t report the income.” False. Information returns help the IRS find unreported income, but taxpayers must report all taxable income whether or not they receive a 1099‑K or other information return.
  • Confusing 1099‑K with 1099‑NEC. The 1099‑NEC reports nonemployee compensation (e.g., freelance fees) paid directly by businesses; the 1099‑K reports payments processed by payment networks. Both can apply to the same person in different situations—see our article: How 1099‑K and 1099‑NEC Reporting Affect Small Businesses.

Real‑world examples and practical steps (from my practice)

Example 1: Seasonal maker on Etsy

  • Gross payments processed through Etsy in 2023: $800 (platform issued a 1099‑K for 2023). The seller’s cost of materials and marketplace fees totaled $500.
  • Tax outcome: The seller reports $800 in gross receipts on Schedule C, subtracts $500 in cost of goods sold and fees, and pays tax only on net profit ($300), plus any applicable self‑employment tax.

Example 2: Seller who mixes personal and business transactions

  • Many sellers use a personal Venmo or PayPal account for both friend payments and business sales. If the platform treats payments as goods/services, it may generate a 1099‑K. Use a separate business account (or mark transactions correctly) and keep clear records to avoid misclassification.

Practical checklist:

  • Separate accounts: Use a dedicated business payment account to keep business activity distinct from personal transfers.
  • Monthly reconciliation: Reconcile platform reports to your bookkeeping each month to catch errors early.
  • Track refunds and chargebacks: Create an accounting line for returns that offsets gross receipts.
  • Preserve platform reports: Save monthly statements and the annual Form 1099‑K PDF you receive.
  • Consider estimated taxes: If your net profit is taxable and you expect to owe $1,000 or more when filing, consider quarterly estimated tax payments to avoid underpayment penalties.

How to dispute an incorrect 1099‑K

  1. Review the form for incorrect payee name, taxpayer identification number (TIN), or amounts.
  2. Contact the payment processor and request a corrected Form 1099‑K. Processors can correct filing errors and resubmit to the IRS.
  3. If the processor won’t correct it and you file your tax return, attach an explanation and keep documentation showing the accurate figures. If the IRS sends a notice about a mismatch, respond promptly with your records.

Special considerations

  • Marketplace facilitators and reporting rules: Some marketplaces report payments on behalf of third‑party sellers; others require sellers to report. Know how your platform treats reporting.
  • Personal transfers: Document non‑business transfers (gifts, reimbursements) and mark them where platform tools allow. These are not taxable business receipts when they are true gifts or reimbursements with supporting evidence.
  • State taxes: Some states use federal information returns in state audits or compliance checks. Keep state filing rules in mind and track sales tax responsibilities separately.

Where the IRS guidance stands (authoritative sources)

  • IRS, About Form 1099‑K: general description and reporting responsibilities. (irs.gov/forms‑pubs/about‑form‑1099‑k)
  • Instructions for Form 1099‑K: details on reporting, corrections, and payee responsibilities. (See IRS publications and form instructions online.)

Always check the current IRS web pages for the latest implementation and filing specifics; rules and platform practices evolved across 2022–2024 and may continue to change.

When to get professional help

  • If your 1099‑K amount is materially different from your records and the platform won’t correct it.
  • If your business has grown so that income, self‑employment tax, or employment tax questions become complex.
  • If you receive multiple 1099‑K or other information returns that are difficult to reconcile.

In my practice, the most common problem is inadequate documentation for refunds and cost of goods sold—simple bookkeeping fixes like consistent invoicing, separate business accounts, and monthly reconciliations often prevent notices and reduce stress in tax season.

Bottom line

The lower reporting threshold (statutorily $600 for third‑party settlement organizations) made the 1099‑K more common for small and occasional sellers. A 1099‑K is an information return showing gross payments processed—use it as a reconciliation tool, not a tax bill. Keep clear records of income, refunds, fees, and expenses; reconcile platform reports each month; and consult a tax professional if amounts don’t match or you need help calculating taxable net income.

This article is educational and not individualized tax advice. For your specific situation, consult a CPA or tax attorney. See the IRS page “About Form 1099‑K” for authoritative rule language and the latest instructions.