You’ve probably seen it by now if you have any type of business and receive electronic payments from your customers–credit cards, Venmo, PayPal, etc. You will also receive one even if you’re not self-employed if you use cash transfer apps like Cash App. The 1099-K is issued by third party payment processors and it reports all of the payments and transactions that were processed through them over the past calendar year. You should receive your copy early in the following year–they are required to be sent out by January 31. Important to note: the IRS and your state also receive a copy of this report, just like W2s and other 1099s.
So what’s new for 2023? The requirement to issue a 1099-K previously kicked in at $20,000 of transactions with any one processor. This year, that threshold is just $600. Not just one payment but the total aggregate payments you received throughout the year.
What do you do with your 1099K? The presumption is that payments you have received, whether issued to a business or to you personally, are income to you. If this is true, your tax preparer will know how to list these amounts on your tax returns–either as Schedule C business income or other miscellaneous income.
What if it isn’t really income? You may have simply been reimbursed by a friend for a meal, or rent payment, or just received some funds from your parents when in a bind. There is a way on most payment platforms to designate payments as personal or nontaxable, so take the time to determine how to do this if it’s possible. You can request that the processor issue you a corrected 1099K, but they all have their own rules and requirements, and they are not required to correct it for you before your tax deadline. If this isn’t a good option for you, you can still designate part of the 1099K receipts as nontaxable on your tax returns, and your tax preparer should know how to do that as well.
What not to do? Definitely don’t ignore the form. While it may not be correct or it may not actually be income to you, the IRS and your state have a copy of it, and they will assume that it is income. Whether it’s taxable income or not, it has to be explained and listed on your returns or you may find yourself explaining it later anyway. Nobody likes that kind of conversation with the tax agencies.