from a payment card transaction (like a debit
card or credit card); and/or
in settlement of third-party payment network
transactions, above minimum thresholds of
$20,000 in gross payments and
Form 1099-K will be filed and sent by a payment settlement
entity (PSE). You’ll receive a copy either from a merchant acquiring entity
(MAE) or a third-party settlement organization (TPSO). It just depends on how
you received payments.
Merchant Acquiring Entity
An MAE is a company contractually obligated to pay you (the merchant) for payment card transactions you processed. So, if you’re a retailer who accepts credit cards through a point-of-sale (POS) system, you might receive a 1099-K from your credit card processor.
Payment card transactions include any transaction where a payment card or data associated with a
payment card (like the account number) was accepted as payment.
TPSOs are a little more complicated than MAEs. If you work
with a TPSO, you have an agreement where the TPSO will handle the payments
between you (the seller) and the purchaser.
To be considered a TPSO by the IRS, the company you work
with must include:
the establishment of accounts by a significant
number of unrelated parties,
an agreement between the company and sellers to
the establishment of standards and mechanisms
for settling transactions, and
a guarantee that the sellers will be paid.
One of the most familiar examples of a TPSO is eBay. When
you sell items on eBay, eBay collects payments from your buyer, then transfers
those funds into your account.
Why Would I Receive Tax Form 1099-K?
There are several reasons you might receive a 1099-K. You might
receive one if, in the prior calendar year, you
received payments by credit card, debit card, or
other payment cards through your POS system;
sold items on eBay or similar auction sites;
drove for companies like Uber or Lyft;
performed freelance work through sites like
Upwork or Task Rabbit; or
sold merchandise on Etsy.
When Will I Receive It?
If your PSE is required to send you a 1099-K for 2018, they
must send it to you by January 31, 2019.
If they’re paper filing the form, they must send it to the
IRS by February 28, 2019. And, if they are e-filing the form, they must file it
by March 31, 2019.
How Do I Read Tax Form 1099-K?
A 1099-K will include the gross amount of all reportable
transactions. It will not include any
adjustments for credits, cash equivalents, discount amounts, fees, or refunds.
When you receive your form, what exactly are you looking at?
Line 1a shows you the gross amount of your transactions.
Line 1b will show the gross amount of any card-not-present
transactions. Card-not-present transactions could be transactions where you
manually keyed the card number into your POS terminal, or if you accepted any
online or phone sales.
Line 2 is your merchant category code (MCC). An MCC is a
four-digit code used by the payment card industry to classify your business
based on the types of goods or services you sell.
There are a lot of different MCCs, but examples include
5912 – used for drug stores and pharmacies;
7011 – used for hotels, motels, and resorts; and
5815 – used for retailers who sell digital goods
(media, books, movies, and music).
If you’re receiving form 1099-K from a TPSO, Line 2 will probably be blank.
Line 3 shows you the number of transactions you processed
during the year.
If any federal income tax was withheld from your payments,
the amount will be on Line 4.
Likewise, if any state income tax was withheld, the amount
will be on Line 8.
Line 5 breaks down the gross amount of your transactions by
This is particularly helpful for you because you can use
these amounts to make sure all your transactions are already included in your
gross income. It’s a lot easier to find a missing transaction if you know to
look in March, instead of having to search through the entire year.
The dollar amount for each of your transaction is determined
on the date of the actual transaction. So, if someone spent $50 at your store
on October 31, the amount will be included in your October total – even you
didn’t receive the funds from your PSE until November.
What Do I Do with Tax Form 1099-K?
Your transactions and payments from form 1099-K are reported with the rest of your income. Depending on your business entity, you might report your income on
a Schedule C (this is the most common if you’re a sole proprietor, a freelancer, or an Uber driver),
an 1120s (if your company is an S Corp), or
a schedule E (if your company is a partnership, then the income will initially be reported on Form 1065).
When you receive form 1099-K, compare it to your financial statements to make sure the amount reported on the form is included in your gross income.
If you’re receiving the form because you accepted credit
cards, compare your 1099-K to your credit card receipt records and merchant
account statements to make sure everything matches.
If you’re receiving the form because you freelanced, drove
for Uber or Lyft, or sold things on eBay, then compare your 1099-K to your bank
statements to make sure everything matches.
Make sure to include the amounts of your transactions in
your income before filing your tax return.