It’s tax season, which means all sorts of cryptic tax forms can pop up in your mailbox. The tax returns that small business owners end up filing can be even more puzzling. Especially if you’re new to entrepreneurship. What the hell is this 1099-K form? why did you receive it? What does that mean?
All these questions will be addressed below.
What is Form 1099-K?
Form 1099-K appeared in 2012 after the financial crisis of 2008, when the government was trying to find more money (and thus collect more taxes).
Third-party payment processors such as PayPal, Amazon, and Stripe are required to issue a Form 1099-K to certain merchants who process payments using these processors.
The government believed that merchants who used these third-party payment processors to collect money probably did not pay taxes on their income. Form 1099-K must be submitted to both the company using their platform and the IRS.
In other words, Form 1099-K is the government’s way of tracking amounts that actually go through online payment processors such as PayPal, Amazon, and Stripe.
Related: Are you overcomplicating your business tax?
Who receives Form 1099-K?
Form 1099-K has been issued since January 2012, but you may not have received it.because that’s what you have to do meet some specific criteria to get the form. Third-party payment processors must send Form 1099-K to:
- Made over $20,000 in sales through that particular payment processor.
- Made over 200 sales through that particular payment processor.
Note: In 2021, it was decided that the threshold for 1099-K forms will be lowered to $600 instead of $20,000 per $200. However, the IRS announced on Dec. 23, 2022 that this tax season will be treated as a transition year and the old threshold limits will be retained.
“Although the reduced third-party payment organization reporting requirements for Form 1099-K have been deferred, some individuals may have not yet received a Form 1099-K in the past. Recipients may receive a Form 1099-K in response to selling a personal item or receiving a Form 1099-K in error (i.e., dealing with a friend or family member, or sharing costs) The IRS is updating guidance directing taxpayers to report these scenarios on Form 1040, Schedule 1 for tax year 2022.”
Please note that if you plan to receive your Form 1099-K, you must receive it by January 31st. Third party payment processors are permitted by law to submit forms electronically or by mail.
What should I do with Form 1099-K?
When you receive your Form 1099-K, the first thing you should do is compare it to your financial records. It’s not unheard of for payment processors to make mistakes. If they falsely report to the IRS that you made more money than you actually did, he could be caught on the hook of paying taxes on money you didn’t actually make!
Before you worry that the numbers don’t match, be aware of a few things. Form 1099-K considers gross sales only. As such, we do not consider or report:
- Fees (i.e. PayPal fees, marketplace fees, etc.)
- refunds and returns
- shipping and postage
- Business expenses such as packing supplies
If you determine that your 1099-K is incorrect, contact the third-party payment processor that issued it immediately. If you determine that the 1099-K matches your records, please keep it for your records. This just returns information, so you don’t have to do anything else. The payment processor has already sent him to the IRS.
Related: IRS FAQs for Payment Cards and Third Party Network Transactions
Form 1099-K for GoDaddy Payments Customers
To improve the tax filing experience for customers using GoDaddy Payments, we have automated the Form 1099-K process. With this rollout, GoDaddy Payments customers will be able to access and download a PDF/electronic copy of Form 1099-K from the new Tax Center in Payments Hub.
What does the IRS do with Form 1099-K?
Form 1099-K ensures that we all pay our fair share of income taxes. So if a third-party payment processor reports that your income is $75,000, and the IRS tells you that he only earns $74,000, have your financial records and paperwork inconsistent. should be prepared to support Otherwise, your tax return may require further scrutiny.
Tax season can be stressful for small business owners, so we hope this guide helps clarify Form 1099-K and the steps you need to take before filing. If you’re interested in further automating -K in the future, GoDaddy Payments has you covered.
Nothing above should be construed as legal or tax advice. Always consult an attorney or tax professional for your specific legal or tax situation.