What is Form 1099-K and which businesses need one?

A Form 1099-K is an IRS form used to report debit and credit card transactions from third-party network payments. Third-party network payments are payments made and received through outside networks like Venmo and PayPal. These networks can also be called third-party settlement organizations (TPSOs). The TPSO is required to fill out the 1099-K and send a copy to the IRS and the person who received the payments.  

Form 1099-K serves to improve voluntary tax compliance and ensure people report their business income on their tax returns. 

A Form 1099-K is different from Form 1099-NEC, which reports payments to independent contractors of all kinds. A 1099-K will only report payments made to you by a third party.

If your business provides services or sells goods and accepts credit cards, debit cards, gift cards, or other payment cards or uses apps to receive payments, you’ll most likely get a Form 1099-K.

This means you might receive a 1099-K if you:

• Sold items on sites like eBay, Etsy, or Ticketmaster
• Received business funds on Venmo, PayPal, Zelle, Cash App, or other payment apps
• Worked for app-based companies like Lyft, Uber, or DoorDash
• Did freelance work online

You can receive Form 1099-K even if you don’t have a business, as long as the payments you receive from apps exceed the reporting threshold of $20,000 and 200 transactions. 

The reporting threshold was lowered by the American Rescue Plan Act of 2021. However, the One Big Beautiful Bill Act returns the Form 1099-K reporting threshold to $20,000 and 200 transactions. Per the legislation, this takes effect “as if included in section 9674 of the American Rescue Plan Act.” Read One Big Beautiful Bill Act changes 1099 thresholds for more details.

Note that you may receive 1099-K even if you didn’t hit the threshold. Some businesses choose to send them regardless of the minimum. In that case, you’ll still need to consider the amounts listed on the form when you file your tax return — but you may not owe taxes on this income at all.

If you’re an independent contractor or self-employed, you typically report your income on Schedule C of your Form 1040 individual tax return, and that includes what you see on your Form 1099-K. If your business is considered a pass-through entity like an S corporation or partnership, you’ll report the information on a Form 1120, 1120S, or 1065. 

Again, receiving a Form 1099-K doesn’t necessarily mean you owe taxes on that money. Not all transactions reported on the form may be business-related, and you may have tax deductions that will offset some of your business income.

Also, make sure you don’t double report your income. If you did $5,000 worth of freelance work for a client who paid you through PayPal, you’ll receive both a Form 1099-NEC and a Form 1099-K reporting that same $5,000. While you’re responsible for reporting all of your business income to the IRS, you’ll only have to file your 1099-NEC since it’s a more comprehensive form. This will prevent you from reporting the income twice. 

Confused? The new regulations for Form 1099-K might seem a bit daunting, but Avalara is here to help you make sense of it all. Stay on top of your taxes this year with a little help from Avalara 1099& W-9.

Avalara has updated this blog post; it was originally published in December 2022.