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Form 1099-K: What It Is, Real-Life Examples, and How to Use It

Gig Workers Self-Employed Taxes Self-Employment Tax Forms Self-Employment Tax Planning
A woman in a pink top reviews a 1099-K tax form while looking at her laptop

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Updated for tax years 2023 and 2024.

Did you receive a 1099-K tax form this year? If you’ve never seen this document before and are unsure what to do with it, don’t freak out — we can help you understand your Form 1099-K and guide you through reporting any necessary income, if applicable.

At a glance:

  • IRS Form 1099-K reports payments received via credit/debit cards and third-party networks.
  • In 2023, a 1099-K is issued to taxpayers if payments total at least $20,000 over at least 200 transactions. In 2024, the threshold drops to $5,000, and there is no transaction limit.
  • Transactions are only taxable if they result in a profit.

What is Form 1099-K?

Many types of 1099 forms exist, but Form 1099-K, Payment Card and Third Party Network Transactions, is most often sent to gig workers or those who use online payment platforms, apps, or payment processors. Rideshare drivers, independent retailers, or any small business that accepts credit card payments through a processor such as Square® or PayPal® are all examples of people who may receive a 1099-K.

Form 1099-K is an informational return that records transactions from credit or debit cards and third-party payment networks. Once you hit a certain threshold in payments received from these platforms, the third-party app is required to send you Form 1099-K. They will also send copies of the form to the Internal Revenue Service (IRS) and the state.

An image of IRS Form 1099-K

Why did I receive a 1099-K?

You can receive Form 1099-K for a variety of reasons. How you report the income listed on your 1099-K depends on how you made that income, which can be confusing if you’ve never seen this form before.

For 2023:

If you received a 1099-K for tax year 2023, it means you had to have made at least 200 transactions totaling at least $20,000 through one of these third-party apps OR you were subject to backup withholding. Additionally, some states have lower 1099-K reporting thresholds (as low as $600), so even if you didn’t hit the federal threshold we mentioned, you may still receive the form if you hit your state’s threshold.

You could also receive more than one 1099-K. For example, if you hit the $20,000 threshold on both Venmo® and Cash App®, you’d receive a 1099-K from both companies.

For 2024:

The IRS is lowering the 1099-K reporting threshold for tax years beyond 2023. If you receive a 1099-K for tax year 2023, it means your transactions totaled at least $5,000, regardless of the number of transactions. For example, if you only had one transaction totaling $5,500, you would still receive a 1099-K because you hit the reporting requirements — the number of transactions will no longer be a factor.

The threshold will drop even lower to $600 in tax year 2025. Because of these big changes, more people will receive Form 1099-K in the coming years. TaxAct’s goal is to help eliminate any confusion arising from these changes and ease your mind so you’re less stressed during tax season.

Does a 1099-K mean I owe money to the IRS?

Not necessarily. A 1099-K doesn’t differentiate between business transactions and personal transactions — it’s simply an informational document showing all the transactions made to you via the payment app. That means it’s up to you to decide whether those transactions were taxable based on your own records.

You only owe taxes on the net profits you made. Here are some examples of taxable transactions:

  1. You sold a personal item or collectible for more than you originally paid for it, and you collected your payment through Venmo®.
  2. You sold goods at a farmer’s market as a side hustle and collected customer payments through an app like Square.
  3. You rent out a room in your house and collect payments and fees from renters through a third-party payment app like PayPal.
  4. You crochet as a hobby and sell items you’ve made online through a site like eBay® or Etsy.

You do not owe taxes on personal transactions or items sold at a loss. Here are some examples of non-taxable transactions:

  1. You sold a personal item for less than you originally paid for it. For example, you sold your couch on Facebook® Marketplace for $200, but you originally paid $800 for the sofa several years ago. In this example, you’d report your $600 loss on either Schedule 1 or Schedule D.
  2. You collected reimbursements from roommates for rent via an app like Venmo.
  3. You received any other personal payments from friends or family through a third-party payment app.

Don’t worry if this sounds confusing. TaxAct® can help you differentiate between taxable and nontaxable payments by asking you questions about what you sold as you file.

Real-life Form 1099-K scenarios and examples

To help put things into perspective, let’s review some more detailed examples or reasons to receive a form 1099-K and how to report your income accordingly.

1. Selling used personal items or reselling items

If you sold any personal items during the year, you typically only need to report the sale if you sold the item for more than you originally paid for it.

Let’s look at a couple of examples of a taxable sale:

Last year, you acquired an old table for $20. You restored the table and then decided to sell it over a year later. You end up selling the table for $100, leaving you with an $80 gain. You collect the payment through Venmo (a third-party payment network), and Venmo sends you a 1099-K with this transaction listed among other third-party network transactions.

Since you sold the table for more than you paid, you would need to report the sale on your income tax return. In this example, the $80 profit you made would be a long-term capital gain and taxed as such. To calculate how much tax you might owe on a short- or long-term capital gain, use our capital gains tax calculator.

The same thing goes for reselling items. Say you purchased tickets for a music event through an online platform. Something happens to make you unable to attend the event, so you resell the tickets online for $100 more than what you paid. You collect the payment through PayPal, and PayPal sends you a 1099-K with this transaction on it.

In this instance, you would need to report the sale on your tax return and owe income tax on the $100 profit you made. However, this situation is likely an outlier — most used personal items often decrease in value over time, and you’re more likely to sell them for less than you paid. If you don’t make a profit, you don’t owe any income taxes on a sale. But because Form 1099-K shows your gross payments, non-taxable transactions may still be listed.

Let’s look at an example of a non-taxable sale:

Say you purchased a TV 10 years ago for $400. After a while, you upgrade to a bigger TV and sell your current one via an online marketplace for $50. Since you sold the TV at a loss, you would not need to pay taxes on this sale, even if the sale is listed on a 1099-K you receive. You should still report the loss on your tax return, but it does not count as income, and you won’t owe taxes on the sale.

2. Selling goods or services as a side hustle

Now, let’s say you ran a side hustle selling goods for a profit, such as produce at a farmers’ market. You had multiple payment methods — in addition to cash sales, you collected debit and credit card payments from buyers through an app such as Square. When tax season rolls around, Square sends you a 1099-K with a list of all your gross receipts from these transactions.

Because you sold all your goods for a profit, the IRS treats this as business income, and you will need to pay taxes on that income.

Tax Tip: You may receive a 1099-K for all your digital transactions, but don’t forget that you must also report any cash sales you made.

The same could be true for any freelancer or independent contractor work you do on the side. If you accept electronic payment card transactions for your services, you’ll likely get a 1099-K from the third-party payment network (like Square in the example above).

3. Hobby selling

If you have a hobby such as painting or pottery and sometimes sell your art for a profit, you must also report that income.

The IRS defines hobby selling as an activity that you engage in for sport or recreation with no intent to make a profit. So, if you start selling your hobby pieces on Etsy with the intent of making a profit or start depending on your hobby selling as your livelihood, you risk the IRS classifying your hobby as a business and you as self-employed, meaning you’d have to file Schedule C.

Assuming you’re making income from your hobby, you’ll still need to report any profits you make. Hobby sale income is classified as “additional income” by the IRS. If you get a 1099-K detailing your hobby sale transactions, you can report your hobby income on Schedule 1, line 8 of Form 1040.

Unfortunately, you cannot deduct hobby expenses from your hobby income as you would deduct business expenses. For example, if you crochet and sell your crafts on Etsy, you would not be able to deduct the cost of yarn to reduce your profit.

4. Renting out personal property

When you rent out personal property — maybe household tools, yard equipment, or even your car or a room in your home — you also need to report this income on your tax return.

For example, if you occasionally rent out some yard equipment during the summer and collect payments through an app like PayPal, you may receive a 1099-K reporting all your rental transactions. If you aren’t in the business of renting out your personal property (you only do it occasionally and don’t run it like a business), you’d report this income much like a hobby on Schedule 1, line 8k. Unlike a hobby, you can deduct expenses related to the rental of personal property. You can do this on line 24b of Schedule 1 Form 1040.

Why did I get a 1099-K and 1099-NEC for the same transaction?

If you are self-employed, you may sometimes receive Form 1099-K and Form 1099-NEC for the same transactions. For example, say you do contracted landscaping work for various clients, including individuals and businesses. You also accept client payments through a third-party payment app like Square. The businesses you worked for sent you Form 1099-NEC showing the payments they made to you. But since some of them paid you with a credit card, Square also sent you Form 1099-K detailing some of the same transactions.

Don’t worry; you don’t have to report your income twice if this happens. Forms 1099-K and 1099-NEC are there for your information only. Always check these tax documents against your own records to ensure you report your self-employment income correctly.

How to report Form 1099-K income on TaxAct

TaxAct takes accurate tax reporting seriously. That’s why we’ve spent much time and care optimizing our 1099-K reporting. Our detailed Q&A includes various questions about what your 1099-K was for so we can help pull the proper tax forms for you.

First, we’ll ask you for information about what types of income you’ve earned this year:

A screenshot showing how to add Form 1099-K in TaxAct's tax filing software

As you can see from the TaxAct product screenshot above, Form 1099-K appears in more than one place — typically, this form is used for those who are self-employed, operate a side hustle, or sell personal items online. You could also receive a 1099-K for real estate rentals and royalties or farming.

If you received a 1099-K for goods you sold as a hobby, you have the chance to select this in the next section under Less common income, then “activities not for profit,” as shown below:

A screenshot showing how to add activities not for profit listed on Form 1099-K in TaxAct's tax filing software

As you go through our 1099-K reporting process, we’ll ask you comprehensive questions about your payment transactions and who sent you the 1099-K. If you have more than one 1099-K, we’ll go through them one at a time. It’s possible you could also have multiple businesses on a single 1099-K — if so, we can help walk you through that process as well.

A screenshot showing how to add personal property sales reported on Form 1099-K in TaxAct's tax filing software

Knowing what the payments were for helps us determine whether you owe taxes on that income. Based on your answers, we’ll help you correctly report the income and enter any expenses to reduce your taxable income, if applicable.

Here’s an example question:

A screenshot showing how to add losses from Form 1099-K in TaxAct's tax filing software

This would be a good time to reiterate that not all the transactions on your 1099-K are necessarily taxable income. Form 1099-K only shows the gross amount of all your payment transactions, while you only owe taxes on your net income. For instance, if you sold a personal item at a loss, no income would be recognized on the sale, and, therefore, no income taxes are owed.

Our tax preparation software will help you decide which transactions are taxable and which are not based on the information you provide. After you’ve entered all the applicable transactions from your 1099-K, we’ll review what you told us. At this point, you can go back in and edit or add to each section if necessary. After that, you’re done with your 1099-K!

The bottom line

If you receive an unexpected Form 1099-K this year, knowing what it’s for and how to use it is essential. TaxAct makes the reporting process as simple and straightforward as possible. When you e-file with us, you can rest easy knowing we’ll guide you through it step by step.

This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
All trademarks not owned by TaxAct, Inc. that appear on this website are the property of their respective owners, who are not affiliated with, connected to, or sponsored by or of TaxAct, Inc.

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