What Is a 1099-K?
If you drive for a rideshare company like Uber or Lyft or sell your work on Etsy, you’ve likely heard of the 1099-K form. But you might not know how it affects your taxes. Stride is here to explain everything you need to know about the 1099-K form so you are ready to tackle tax season.
What is a 1099-K form?
There are 15 different types of 1099 forms, and the 1099-K is just one of them. The 1099-K is called the Payment Card and Third Party Network Transaction form, which is a fancy way of saying it reports payments you receive through a third party (such as Uber, Lyft, Etsy, and even payment platforms like PayPal and Venmo) to the IRS.
Put simply, the 1099-K is used by companies that facilitate payments to you for your goods or services from another person or party who is acting as the purchaser. For example, if you sell your jewelry on Etsy, Etsy processes the payment from the buyer on your behalf. This makes Etsy a third-party payment processor because it facilitates credit card payments between you (the seller) and the buyer.
Who will receive a 1099-K?
If the company you work for processes payments on your behalf, you are eligible to receive a 1099-K form. However, a company is only required to provide you with a 1099-K if you meet both of the following criteria:
The company facilitated 200 or more transactions for you.
These transactions totaled $20,000 or more.
If you only meet one of these requirements, the company you work for isn’t required to send you a 1099-K. For example, if you drive for Uber and did 400 rides (one ride = one transaction), but these rides (transactions) only totaled $17,000, Uber would not be required to send you a 1099-K.
Keep in mind: These 200+ transactions totaling more than $20,000 must take place in a single calendar year. If you meet these requirements, you will be issued a 1099-K and a copy of that form will be sent to the IRS for you. While the company you work for might issue you a 1099-K if you don’t meet this threshold, it is not required to.
New rules for who receives a 1099-K
Starting in 2022, new rules require third-party companies to send you (and the IRS) a 1099-K if they pay you $600 or more throughout the year, regardless of how many separate transactions have been made. That’s a huge difference from previous years and will result in far more people receiving 1099-Ks when they file their taxes.
That said, it’s a good idea to make sure you’re keeping thorough records of your income from all sources so you can compare them to the 1099-K forms you receive. If you don’t keep your own records and one of your 1099-K forms gets lost in the mail without you realizing it, you could end up filing an incorrect tax return and underpaying your taxes.
What companies will provide a 1099-K?
In the past few years, several companies have started to use 1099-K forms to report payments facilitated on their online or mobile platforms. Some of these companies include:
Uber
Etsy
Favor
Ebay
Kickstarter
Lyft
Airbnb
PayPal
Venmo
And many more!
Keep in mind, companies are only required to issue a 1099-K if you meet the criteria mentioned above.
When will I receive my 1099-K form?
Just like other 1099 forms, your 1099-K must be mailed to you by Jan. 31 at the very latest. This means you should have it in your hands by early February.
What is the difference between a 1099-NEC and 1099-K?
While the 1099-NEC and 1099-K both report business income you received during the tax year, they are two different forms. The primary differences are as follows:
Form 1099-NEC reports payments to independent contractors, but isn’t limited to only reporting payments to you by a third party like form 1099-K is. If your company pays you directly for your goods or services, it will issue a 1099-NEC.
Previously, the threshold for receiving a 1099-K is much higher than that of a 1099-NEC. In order to receive a 1099-NEC, the only requirement is that you have been paid $600 or more. However, with the new rules mentioned above, the thresholds for both forms will be $600 for payments you received starting in 2022.
On your 1099-K, you will see the gross amount of transactions processed on your behalf. This means that the number you see includes fees, commissions, etc. A 1099-NEC will not include these. But don’t worry! You won’t have to pay taxes on the commissions or fees included on your 1099-K. You can (and should!) deduct them on your Schedule C.
If this seems confusing, don’t stress! It isn’t your responsibility to determine which form you receive. A good rule of thumb you can follow to differentiate these two forms is that, in general, freelancers working in the on-demand economy and using an app like Uber, DoorDash, or Etsy, will receive a 1099-K. Other freelancers and contractors will receive a 1099-NEC.
How do I use my 1099-K when I file my taxes?
The most important box that you’ll use on this form is Box 1a (circled above). This box is titled “Gross amount of payment card/third party network transactions.” This is the total you’ll use when calculating your business profit or loss on the Schedule C. This number will go on Part I, Line 1 of your Schedule C.
Keep in mind that you need to pay taxes on this income.
I spotted a mistake on my 1099-K. What now?
First, make sure you’ve double-checked that the total reported on your 1099-K in Box 1a equals the total amount of payments the company processed. To do this, you should add up all associated commissions and fees with the amount of money that was sent to your bank account. This should match what your 1099-K shows. If it doesn’t, reach out to the company quickly to have your form corrected.
Additionally, if the IRS sends a notice about underreporting on your 1099-K form due to the mistake you found, here’s what to do:
Respond within the amount of time allowed in the letter.
Provide an explanation as to why you reported the amount of income you did on your Schedule C.
If you filed your tax return before your 1099-K was corrected, provide that as your reasoning.
Insider tip: It’s best to wait to file your taxes until your 1099-K is corrected.
Seek a tax professional to help you through the process if you need further assistance.
Have a 1099-K question we didn’t cover? Send it our way at taxhelp@stridehealth.com. And don’t forget to download the FREE Stride app, your one-stop platform to tackle all the challenges of independent work. It can help you save time and money on taxes by automatically tracking your miles and expenses, surfacing money-saving deductions, and getting your forms IRS-ready.
Disclaimer: The information contained in this guide is not offered as legal or tax advice. The U.S. federal income tax discussion included in this guide is for general information purposes only and is not a complete analysis or discussion of all potential tax consequences that may be relevant to a particular individual. In light of the foregoing, each individual should consult with and seek advice from such individual’s own tax advisor with respect to the tax consequences discussed herein. Any information contained in this guide is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the U.S. Internal Revenue Code of 1986, as amended.