What is the Form 1099-K?

Form 1099-K, or "Payment Card and Third Party Network Transactions," is a tax form used to report payments and transactions from online platforms, apps, or payment card processors. In this article, we'll provide you with the exact steps for filling out Form 1099-K and other important information.

Here's a summary of the type of information included in Form 1099-K:

• FILER's name, address, telephone number, and TIN
• Type of FILER (PSE or EPF/third party)
• Type of transactions reported (payment card or third-party network transactions)
• Account number (if applicable)
• Gross amount of total reportable payment transactions for the calendar year (Box 1a)
• Gross amount of total reportable payment transactions where the card was not present at the time of the transaction (Box 1b)
• Merchant Category Code (MCC) used by the payment card industry to classify the payee (Box 2)
• Number of payment transactions processed through the payment card/third-party payer network (Box 3)
• Federal income tax withheld (backup withholding) (Box 4)
• Gross amount of total reportable payment transactions for each month of the calendar year (Boxes 5a through 5l)
• State information (Boxes 6 through 8, if applicable)

Who needs to file the Form 1099-K?

Form 1099-K is typically required to be filled out by payment settlement entities (PSEs) and electronic payment facilitators (EPFs) or third-party settlement organizations (TPSOs). These entities are responsible for reporting payment card and third-party network transactions made to merchants or other payees. However, there are certain exceptions to this rule, which are listed below:

• Transactions made through a payment card or third-party network that are not for goods or services, such as cash advances or balance transfers, are not required to be reported on Form 1099-K.
• PSEs and EPFs are not required to report transactions for payees that do not meet the reporting threshold of $20,000 in gross payment volume and 200 transactions within a calendar year.
• Transactions made by a payee solely for the purpose of purchasing goods or services for personal, family, or household use are not reportable on Form 1099-K.
• Transactions made by a payee that is a foreign organization, are not required to be reported on Form 1099-K, unless the foreign organization has a U.S. tax identification number and a U.S. address.

Essential updates to the Form 1099-K

For the most recent updates to Form 1099-K, there are a few changes to be aware of:

• Starting from the 2022 tax year, the reporting threshold for third-party network transactions has been lowered. Previously, payees needed to meet both the $20,000 gross payment volume and 200 transactions threshold to trigger reporting. However, the IRS instructions for Form 1099-K now state that the reporting threshold is a minimum of $600 in gross payment volume, regardless of the number of transactions.
• As of January 1, 2022, the IRS has clarified that virtual currency transactions are reportable on Form 1099-K when facilitated by a PSE or EPF. This includes transactions made using convertible virtual currencies, such as Bitcoin, that have an equivalent value in real currency or act as a substitute for real currency.
• Additionally, the IRS has updated the Form 1099-K itself to include a checkbox in Box 1b for reporting gross payment transactions where the card was not present at the time of the transaction. This change aims to provide more detailed information about the nature of the transactions being reported.

It's essential for businesses and individuals to stay informed about these updates to ensure accurate reporting and compliance with tax regulations.

2024 Form 1099-K filing deadlines

Form 1099-K is required to be filed annually by payment settlement entities (PSEs) and other parties responsible for reporting payment card and third-party network transactions. The due dates for filing Form 1099-K with the IRS typically fall at the end of February, or the end of March if filed electronically, of the year following the calendar year in which the transactions occurred. Additionally, a copy of the form must be furnished to the payee by the end of January of the following year.

Exact deadline dates for 2024

• Form 1099-K sent to payees - due by January 31
• First quarter (January, February, March) - due by April 30
• Second quarter (April, May, June) - due by July 31
• Third quarter (July, August, September) - due by October 31
• Fourth quarter (October, November, December) - due by January 31

Form 1099-K late payment penalty

Failure to file Form 1099-K on time or underreporting your tax liability can result in IRS penalties. The IRS mention that penalties may apply for failure to file or furnish correct information returns and payee statements. To avoid these penalties, ensure you give yourself enough time to complete and file your Form 1099-K by the due date, which is generally January 31st of the year following the calendar year being reported. For more information on penalties, refer to part O in the current General Instructions for Certain Information Returns.

Step-by-Step Instructions for IRS Form 1099-K

Filling Out Form 1099-K

• Filer’s Information: Include the name, address, telephone number, and TIN (Tax Identification Number) of the filer.
• Payee’s Information: Include the name, address, and TIN of the payee.

Detailed Breakdown of Form 1099-K

• Box 1a: Gross amount of payment card/third party network transactions. Report the total gross amount of transactions processed for the payee.
• Box 1b: Card Not Present transactions. Report the total gross amount of transactions where the card was not physically presented (e.g., online transactions).
• Box 2: Merchant category code. The code that categorizes the type of business or service provided by the payee.
• Box 3: Number of payment transactions. Total number of transactions processed for the payee.
• Box 4: Federal income tax withheld. If there was backup withholding, it must be reported here.
• Boxes 5a-5l: Gross amount of transactions for each month. This provides a breakdown by month for easier reconciliation by the payee.

Other Important Points

• State and Local Tax Information: If state or local income tax was withheld, it should be reported in Boxes 6 (state tax withheld), 7 (state identification number), and 8 (state income tax withheld).
• Future Developments: Always check the IRS website for the latest updates on Form 1099-K and its requirements as changes in legislation can affect reporting requirements.

How to file Form 1099-K

Form 1099-K can be filed either online or by mail. To file online, you can use the IRS's Filing Information Returns Electronically (FIRE) system, which requires creating an account, obtaining a Transmitter Control Code (TCC), and following the instructions provided by the IRS. On the other hand, to file by mail, you will need to obtain the appropriate paper forms from the IRS, complete them according to the instructions provided, and mail them to the IRS at the address specified in the instructions, as well as providing a copy of the form to the payee. Online filing is generally faster and more efficient than mail filing, with the IRS encouraging electronic filing for faster processing and fewer errors. However, electronic filing may have additional requirements, such as obtaining a TCC and using the FIRE system, while paper filing may require obtaining physical forms and mailing them to the IRS and the payee.

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