What is an IRS Form 1099-K?
A 1099-K is a transaction record from third-party payment networks such as PayPal or Venmo. They fill out the 1099-K and send copies to the IRS, state and person receiving the payments. The objective is to ensure people report their business income on their tax returns.
An online network is required to file and send a 1099-K if it transfers at least $20,000 to you during the year. The threshold is an aggregate, meaning that even if different people send you small amounts of money through, say, PayPal, throughout the year, you’ll get a 1099-K from PayPal if those payments add up to at least $20,000.
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A 1099-K is not the same as a W-2, which reports income paid to employees. Are you overpaying in taxes?
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What is a 1099-K used for?
A 1099-K is an information return, meaning you can use it to calculate other things on your tax return. Specifically, a 1099-K can help you calculate how much business income you received. If you need help estimating how business income could affect your tax bill, check out our tax calculator.
Who qualifies for a 1099-K?
Anyone who accepts payments from credit cards or third-party payment networks such as PayPal or Venmo might receive a 1099-K. A Form 1099-K has your Social Security number or taxpayer identification number on it, so the IRS will know you’ve received the money.
Do I have to report 1099-K income on my taxes?
There are three things to remember:
- You're required to report business income on your taxes. If you’re a sole proprietor, for example, you’ll likely need to file a Schedule C with your tax return to calculate and report your business income. Your 1099-Ks can help you understand how much you received from clients through Venmo, PayPal or similar payment methods.
- Be sure you don’t double-report your income. Let’s say you did $23,000 worth of freelance work for a client during the year. You’ll likely need to report that income as business income on your tax return, but you’ll have two documents reflecting the income. At the end of the year, the client is probably going to send you a 1099-NEC showing that it paid you $23,000. But if the client sent you that money using PayPal, Venmo or a similar platform, you might also get a 1099-K for the same $23,000 from the payment network. For this reason, you’ll need to keep good accounting records to make sure you don’t over- or underreport your business income.
- Receiving a 1099-K doesn’t necessarily mean you owe taxes on that money. First, not all of the transactions on your 1099-K may be business-related. (The amount could include your roommate reimbursing you for groceries, for example.) Second, you might have self-employment tax deductions that could offset some of your business income.
Are you overpaying in taxes?
NerdWallet Small Business helps you maximize tax savings and save up to $15,000 with our partner Xendoo's year-round tax services.
