Report 1099 K Income on Tax Return

Form 1099-K is used to report income received from income received from electronic payments such as credit cards, debit cards, PayPal, and other third party payers. In most cases, the payment settlement entity (PSE) will send you a 1099-K by January 31. Be sure to add the income you report on your 1099-K to your total business income when you file your taxes.

Steps

Reporting 1099-K Income

  1. Report it on Form 1040 if you are self-employed. If you're self-employed or an independent contractor, you'll report your 1099-K income on Schedule C of form 1040. To report your 1099-K income on this form, simply enter your gross 1099-K income on line 1a of Schedule C.
    • Your 1099-K income is separate from your earnings received by cash, check or any other means. List the total income received by these methods on line 1b.
    • To calculate your gross receipts for the year, add the amount from line 1a with the amount from line 1b. List the full amount on line 1d.
    • You’re responsible for keeping track of any business expenses you had and reporting them as deductions on your Schedule C.
  2. Report it on Forms 1065, 1120 or 1120S if applicable. If you have a partnership, corporation or an S corporation, you'll report your 1099-K income on line 1a of your form. Find your gross 1099-K income and list it on the correct line.
    • Your 1099-K income is separate from your earnings received by cash, check or any other means. List the total income received by these methods on line 1b.
    • To calculate your gross receipts for the year, add the amount from line 1a with the amount from line 1b. List the full amount on line 1d.
    • If you're filing taxes for the 2011 tax year, there is no special line for 1099-K income. Add your 1099-K income to your other receipts and enter the total on line 1b.

Checking the Form's Accuracy

  1. Determine whether a portion of your income comes from a PSE. A PSE, or payment settlement entity, is any third party company that handles payment transactions. Whether you're self-employed or you own a business, if you accept credit cards and other forms of electronic payment, you may be eligible to fill out a 1099-K form. If you don't receive any income via electronic payment, you should not have to fill out a 1099-K.[1]
    • Income received from credit cards, debit cards, and stored-value cards may need to be reported on a 1099-K form.
    • Income received through PayPal, Google Checkout or another payer may also be considered 1099-K income.
  2. Assess the number of transactions and the gross payments received. If you conducted 200 or more transactions with one or more PSEs that garnered a total income of $20,000 or more, you should receive a 1099-K form in the mail with these totals reflected on the form. If you conducted fewer than 200 transactions or the total came to less than $20,000, you do not need a 1099-K form.[2]
    • Sometimes companies send out 1099-K forms even when the recipient may not be required to use them. It's a good idea to manually add up the number of transactions conducted with PSEs to determine whether you need to fill out the form.[1]
    • Not everyone who accepts credit card or third-party payments has over 200 transactions during a given tax period. For example, if you're self-employed and only received 30 credit card payments last year, you won't need a 1099-K. If your business does not accept credit cards or other forms of electronic payment, you should not receive this form.
    • The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, or refunded amounts.
  3. Check the totals against your records. Make sure that your business records accurately reflect the income reflected on the form you receive. Check your merchant statements and payment card receipt records to ensure accuracy and have backup in case you are audited. If you feel there is inaccurate information on your 1099-K, call the PSE that sent it to have a correction made. You should also contact the PSE if the following errors occur on your form:[3]
    • The form is a duplicate
    • The Taxpayer Identification Number is incorrect
    • The number of payment transactions is incorrect
    • The Merchant Category Code doesn't describe your business correctly

Tips

  • If 1099-K you received is larger than your gross receipts, you probably had employees that were receiving tips from customers that were charged to the credit card. Make sure to report all employee tips on their W-2 forms, as this way it becomes a subtraction on your tax return.

Warnings

  • Keep in mind, 1099-K is used only to report to the IRS amounts of your gross receipts charged on the credit card. You still have to report the rest of your income that was paid by checks, cash, etc.

Related Articles

Sources and Citations

  1. ↑ 1.0 1.1 http://www.irs.gov/Businesses/Understanding-Your-1099-K
  2. ↑ http://www.irs.gov/pub/irs-pdf/f1099k.pdf
  3. ↑ http://www.forbes.com/sites/kellyphillipserb/2014/08/29/credit-cards-the-irs-form-1099-k-and-the-19399-reporting-hole/
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