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

Updated for tax year 2024  |  Aug. 26, 2024.

Did you receive Form 1099-K 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 must send you Form 1099-K. They will also send copies of the form to the Internal Revenue Service (IRS) and the state.

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, 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 lowered the 1099-K reporting threshold for tax years beyond 2023. If you receive a 1099-K for tax year 2024, 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.

For more details about what changed, head over to The New 1099-K Reporting Thresholds: What You Need to Know. This article delves deeper into what these changes mean and some common Form 1099-K misconceptions.

Example of Form 1099-K

Here’s an example of what Form 1099-K looks like and the information you’ll find on it:

Here’s a quick guide to the most important boxes you’ll want to pay attention to:

• Box 1a: Gross amount of payment card/third-party network transactions: Box 1a shows the total payments processed for you during the year. This figure is your gross income, meaning it doesn’t consider any refunds, fees, shipping, etc.
• Box 1b: Card not present transactions: This box details the total amount of payments where the card was not physically present (think online purchases).
• Box 2: Merchant category code (MCC): This code classifies the type of business you run (retail, food services, etc.), if applicable.
• Box 3: Number of payment transactions: The total number of payment transactions processed for you throughout the year. This is useful for your records and might be of interest if you compare year-over-year data or calculate average transaction amounts.
• Box 4: Federal income tax withheld: If any federal income tax was withheld from your payments, it will be reported here. This is unusual for most people, but if it applies to you, make sure to include this amount when you’re filing your taxes — it’ll go toward covering your tax liability.
• Box 5a-5l: Monthly gross amounts: These boxes break down the monthly gross payment amounts. This is handy if you want to track your income trends throughout the year or if you’re reconciling your own records with the 1099-K. It’s a snapshot of your monthly earnings, which can be useful if you’re trying to figure out why one month was so much better (or worse) than another.

Your Form 1099-K will also include the payer’s name (the form issuer) and taxpayer identification number (TIN). Your TIN, which could be your Social Security number (SSN) or employer identification number (EIN), will also be listed.

Form 1099-K instructions for real-life scenarios

To help put things into perspective, let’s review 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

Did you sell any personal items during the year? If so, 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. Eventually, you sold the table for $100, leaving you with a $80 gain. You collected the payment through Venmo® (a third-party payment network), and Venmo sent 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. Use our capital gains tax calculator to calculate how much tax you might owe on a short- or long-term capital gain.

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. However, because Form 1099-K shows your gross payments, nontaxable transactions may still be listed.

Let’s look at an example of a nontaxable 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

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 remember to 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, suppose you start selling your hobby pieces on Etsy to make a profit or start depending on your hobby selling as your livelihood. In that case, 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 must also 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.

FAQs about Form 1099-K

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 nontaxable 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 questions about what you sold as you file.

What are the rules for reporting taxes on Venmo?

If Venmo or another third party sends you a Form 1099-K, you only need to report the transactions if those payments represent income. Whether you’re freelancing, running an online store, or offering dog-walking services, any money you earn is taxable. However, if you’re just reimbursed by friends and family for personal transactions or selling personal items at a loss, that’s not taxable. Keep your records straight to ensure you’re reporting only what’s necessary!

What happens if I don’t get a 1099-K?

Remember, the lower 1099-K reporting threshold should not change the amount of taxable income you’re required to report. You must report all personal and business income on your tax return, whether you receive Form 1099-K or not.

What if I receive a 1099-K, but the amount isn’t income?

If you receive a 1099-K for something that isn’t income, like a personal sale, file the document away and be ready to explain it to the IRS if necessary. You won’t include the non-income transactions listed on your Form 1099-K when reporting your income on your tax return.

Do I need to file Form 1099-K with my tax return?

You don’t actually file the 1099-K itself with your return. The payment processor has already sent a copy to the IRS. Your job is to make sure the income reported on the 1099-K is included in your total income on your tax return. TaxAct can help you with this. We’ll ask you for details about your 1099-K transactions to ensure everything gets reported accurately.

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.

Why did I receive a 1099-K from my crypto exchange?

Receiving a 1099-K from your crypto exchange means that you’ve engaged in transactions through the exchange that meet the IRS reporting threshold. This could include trading or selling crypto. For more detailed information on Form 1099-K crypto transactions, check out What To Do If You Received a 1099-K From Your Crypto Exchange.

Will the IRS catch a missing 1099-K?

There is always a risk of penalties if the IRS finds out you failed to report all your taxable income. If you receive Form 1099-K and do not report that income, the IRS will want to know why, and you run the risk of an audit.

Think of a 1099-K as an information return and a reminder to report your income. If you have been reporting your income correctly, you should not see any significant changes this tax season, and you should not have more reason to worry about an IRS audit.

Why you might still get a 1099-K (even if you didn’t meet the reporting threshold)

There are still instances where you might receive Form 1099-K, even if you didn’t meet the IRS reporting threshold. Let’s look at why you might receive Form 1099-K even if your transactions totaled less than $5,000 in 2024.

1. You were subject to backup withholding.

Sometimes, if a payer does not have your correct TIN, they must start withholding a percentage of your payments. This is called backup withholding. It acts as a failsafe to ensure the IRS receives the required taxes on your income. The current backup withholding percentage rate is 24%.

For example, let’s say you sold various items on an online marketplace like eBay® or Etsy® this year. Because the payer (the online marketplace) did not have your TIN (typically your Social Security number), they started withholding 24% of your payments.

In the scenario above, since you were subject to backup withholding, the online marketplace would send you Form 1099-K listing your gross payment transactions for the calendar year.

2. You live in a state with a lower 1099-K reporting threshold.

When you receive Form 1099-K also depends on your state. Not all states follow the IRS filing threshold and instead implement their own requirements. Here’s a list of states that could issue more Form 1099-Ks for tax year 2023 due to lower reporting thresholds.

1099-K threshold by state

• Arkansas – $2,500 threshold
• District of Colombia – $600 threshold
• Illinois – $1,000 threshold and 4 transactions
• Maryland – $600 threshold
• Massachusetts – $600 threshold
• Montana – $600 threshold
• New Jersey – $1,000 threshold
• North Carolina – $600 threshold
• Rhode Island – $100 threshold
• Vermont – $600 threshold
• Virginia – $600 threshold

Note: The list above is subject to change, as state regulatory agencies still need to fully finalize their requirements.

3. The third-party payment network decided to implement the $600 threshold early.

The IRS announcement delaying the $600 reporting threshold came at the end of 2023. Because of the lateness of this announcement, some issuers may still decide to abide by the $600 threshold, even though it is not technically required for tax years 2023 and 2024.

How to report Form 1099-K income with 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:

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

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

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. You may also have multiple businesses on a single 1099-K; if so, we can also help walk you through that process.

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:

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, and you would not owe income tax.

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.

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