Form 1099-K: Merchant Card and Third Party Network Payments

» Articles » Tax Articles » Article

August 08, 2018

Purpose of Form

Companies that process credit and debit cards as well as third-party network payments such as PayPal, and Google are now required to report to merchants and to the I.R.S. the gross amount of the transactions they've processed. If the small business exception, which is fewer than 200 transactions totaling less than $20,000, does not apply to you and you receive Forms 1099-K, be sure to handle them properly on your tax return.

How to Report

All of the forms for business returns have a new line for entering amounts from Forms 1099-K. For example, Schedule C of Form 1040 for sole proprietors and one member limited liability companies has a new line 1a for entering these amounts for processed payments.

Continue reading below

FREE Tax Training from Lorman

Lorman has over 37 years of professional training experience.
Join us for a special white paper and level up your Tax knowledge!

Miscellaneous 1099 Issues
Presented by Jennifer A. Driskill CPA, M.B.A.

Learn More

The I.R.S. deferred the reporting requirement for 2011 filings, allowing a one year transition period for taxpayers and their preparers to familiarize themselves with the new Form 1099-K. Tax year 2012, however, will be the first year that income reported on Form 1099-K must be reported on tax returns.

Keep in mind that the amounts reported on Form 1099-K are the gross amount of the transactions made. This gross amount does not take into account any returns, allowances, cash-backs, or other adjustments to transactions. In order to accurately report your gross income, take these reductions to gross receipts into account on your return so that you don't over-report income.

Duplicate Reporting Issues

If your unincorporated business provides personal services in addition to selling goods, you may receive a Form 1099-MISC to report the payment of services over $600 in the year. For 2011 and onward, Form 1099-MISC is to be issued only for the payment of services in cash or by check. Form 1099-K is to be used for payments by credit card, electronic transfer, etc.

As a result of this change in reporting, many issuers of Form 1099-MISC may be confused or unaware of the new requirements, and they may send a Form 1099-MISC that reports amounts already reported in a Form 1099-K. If this occurs, contact the issuer of the 1099-MISC immediately. Request that they issue a corrected 1099-MISC to eliminate any payments that were made to you by a method that is already reported on 1099-K.

The material appearing in this web site is for informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided herein is intended only as general information which may or may not reflect the most current developments. Although these materials may be prepared by professionals, they should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

The opinions or viewpoints expressed herein do not necessarily reflect those of Lorman Education Services. All materials and content were prepared by persons and/or entities other than Lorman Education Services, and said other persons and/or entities are solely responsible for their content.

Any links to other web sites are not intended to be referrals or endorsements of these sites. The links provided are maintained by the respective organizations, and they are solely responsible for the content of their own sites.