Understanding Your Form 1099-K

What is Form 1099-K?

Taxpayers who use payment settlement entities (PSE), electronic payment facilitators (EPF), or other third-party merchant networks such as PayPal, Stripe, Wave, and others to receive payments, are likely to receive a Form 1099-K from them.

Gig workers such as ride-share and delivery drivers may also receive Form 1099-K from the companies they work with.

What do the boxes on Form 1099-K mean?

Your gross receipts are reported in Box 1a. This does not include any processor fees or any other fees you personally paid to access your money.

Box 1b reports "card not present" transactions, which is the case for most taxpayers who earn income online. If the taxpayer sells goods or services in a freestanding shop or other physical means such as convention booths, and accepts credit cards, Box 1b is likely to report a different figure than Box 1a. Both amounts will likely to be consistent for taxpayers who solely work online.

Box 3 reports the number of transactions the entity processed for the taxpayer for the year. This information has no bearing on one's tax return but may be helpful for business intelligence.

Box 4 reports federal income tax withheld if the taxpayer is subject to backup withholding because they didn’t provide their tax identification number, as 1099 payments generally do not have federal income tax withheld. However, if your state or locality mandates state income tax withholding on electronic processor and third-party card payments, this amount will be reported in Box 8.

Boxes 5a through 5l break down the gross pay received per month.

What if I received other 1099-MISC or 1099-NEC Forms that report the same income as Form 1099-K?

In years prior to 2020, overlap between Forms 1099-MISC and 1099-K were extremely common. Beginning in 2020, Form 1099-NEC started being used to report non-employee compensation, meaning there may be potential overlap between Forms 1099-NEC and 1099-K.

If you were paid by a client or other person or company through an electronic payment processor such as PayPal, they may issue you Form 1099-NEC if they paid you $600 or more during the year. However, if you receive Form 1099-K and it contains the exact same income that is reported on Form 1099-NEC, or multiple forms from different payers, you will need to reconcile the difference on your tax return.

Form 1099-K must be issued to all taxpayers who meet the $20,000 gross receipts and 200 transaction thresholds regardless of how they operate, but the payer does not need to issue Form 1099-NEC to self-employed taxpayers if they use electronic payment processors.

If the 1099-MISC or 1099-NEC is reporting an incorrect amount, or your business entity means you should not have received one, you will need to contact the issuer to get the form corrected or voided.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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