Are you new to the term 1099-K or are you new to knowing about this type of Form 1099?
Well, in any case, there are enough reasons to know about Form 1099-K, especially if you constantly deal in payments through cards or third-party networks.
In this article, we have covered the key highlights of 1099-K Form after which almost all your questions about it will be answered. Let us start with understanding the form a little better.
1. Form 1099-K and when does it get issued?
Form 1099-K is an information record of transactions made through the payment cards and third-party networks. The copies of this form is shared to IRS while filing taxes, state, and businesses or individuals who receive the payments.
Payment cards include debit, credit or stored value cards; whereas, the third-party payment networks include platforms like Stripe, PayPal, Square, and online market places such as Amazon, Etsy, eBay, and so on.
So, if one is using any of these methods and have accepted payments made through these options, then you become liable to get the Form 1099-K. This form is also known as the form of Payment Card and Third-Party Network Transactions.
One receives the Form 1099-K in January of the year following the considered Calendar year. Remember that it must be received before January 31.
2. 1099-K and 1099-NEC aren’t the same
If you haven’t received Form 1099-K before and have been receiving other 1099 form such as Form 1099-NEC, you might confuse them as the same. However, we are afraid it is not the case.
Businesses or business owners issue Form 1099-NEC to their contractors or freelancers in case more than $600 was paid to the contractor. Remember that this amount is the total amount paid to the contractor. Therefore, it reflects ALL the payments made to the contractor on the form.
However, Form 1099-K only records the payments received via payment cards or the third-party networks. This means that Form 1099-NEC also includes payments made through cash, check, direct deposits, ACH, and so on.
In case, you have received all the payments via credit cards then the issuer must issue you a Form 1099-K instead of issuing Form 1099-NEC. Thus, it is suggested to keep records of all the transactions accordingly. It is important to ensure that there are no multiple recordings.
3. Changes in Form 1099-K
Since frauds, scams, or false reports always make their way in, the Form 1099-K also went through some changes. Prior to 2022, the limit of payments was set to $20,000 and more with the number of transactions exceeding 200.
However, with the change in American Rescue Plan Act 2021, the current limit of amount is set to more than $600 without any limit of transactions.
Point to Remember: It only includes payments made via payment cards and third-party transaction processors.
Starting with the calendar year 2022, the new requirements will be applied. Thus, if you have received more than $600, you will receive the Form 1099-K. Even if it is only $1 increase in the amount, the issuers will send the form to you.
NOTE: Make sure that you have a business account for the business-related transactions otherwise you won’t receive the form.
4. Things that can get confusing
In case you are one of the aspirants to receive the Form 1099-K, then you must focus on this point. For ensuring accuracy of the amount, review if you have recorded payments made via cash, check, or ACHs. In any case, Form 1099-K only records the online transactions made via cards and third-party payment processors.
Moreover, Form 1099-K shows the gross revenue and not the net revenue or receipts. The payments recorded have not considered payment processor fees, refunds, or returns of any nature.
This can get confusing when you are considering net receipts which will be much less than the income reported on Form 1099-K. Therefore, it helps in tracking and recording the amount received (revenue) as well as the amount paid (expenses).
5. Reporting Form 1099-K on Tax Return
Let’s not get panic because believe me, it is the last thing that should be in your list. Considering first things first, ask yourself if you have been recording the transactions properly. Make sure that all the transactions from the calendar year have been duly noted.
In case you have received more than one 1099-K forms, then you must calculate the total amount. Now, the total needs to be compared with the income and revenue from the records you have been keeping.
In case your records of gross receipts are showing lesser amount than reported on the Form 1099-K, then you must run your brain. Remember, the income amount on Form 1099-K must be equal to the income in the records in case you have received payments via cards or third-party payment processors. However, in case you have received income via cash and other modes, the amount on the Form 1099-K can be lesser. But in no case, should the amount on Form 1099-K exceed the amount on the records.
Hoping that this article has answered many of your questions to at least get prepared for the tax season and Form 1099-K. In case, you are not looking for Form 1099-K and want to know about the other variants, read Types of Form 1099.
Written by – Priyanka Rampal
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