Selling products online and accepting payment card transactions? Then you may receive 1099 K by the year-end. As per the IRS guidelines, Form 1099 K a familiarly new tax form. Third-party credit card processors use this tax form to report the payment card transactions to the IRS.
Getting confused? Don’t worry! We will let you know why the online business owners need a 1099 K Tax Return. We provide detailed information about the circumstances that require the tax form. You’ll also get to know about the history of bringing this tax return into the 1099 series.
When do you need to deal with 1099 K reporting?
According to the IRS, if you accept credit card payments over the internet, then you need to deal with IRS 1099 K reporting. Unlike other varieties of 1099 Tax Forms, the purpose of 1099 K Tax Return used for payments received via third-party networks or payment cards.
Report the transactions made via payment settlement entities using this tax form. As a business owner, follow proper tax rules to report the revenues and expenses. Suppose, if you’re operating a business as an online retailer and accept payments through credit or debit cards. Then you’ll receive this tax form from a credit card or a third-party processor. Moreover, you should report the income on the tax return.
History of IRS K Form
As per the 2008 Housing Assistance Tax Act, the IRS introduced the tax return to ensure that all online retailers are reporting sales for tax purposes. Furthermore, credit card organizations like MasterCard, Visa, must report the transaction they made on the behalf of retailers on the form. As we know, there was a lot of business income left underreported.
This is because there was no way to verify the income accepted through payment cards except by using bank account records. With the help of Form 1099 K, the IRS began to check whether the businesses are reporting transactions on their tax return. Therefore, it reduced the tax gap and improved collections and assessments.
What are the legal considerations of reporting 1099 K on Tax Returns?
1099 K Tax Form information used to update the records that reflect your accurate business income. Apart from this, you’re responsible to report all of the money you receive from your business on an income tax return form. Furthermore, calculate the gross receipts by combining amounts reported on the form, cash and check payments, or payments from another form. In some situations, you might receive the 1099 information return consisting of the gross payments that don’t belong to you. Given below the reasons that might happen if:
- You share a credit card terminal with another business.
- Buy or sell your business within a year;
- Changing business structure during the year.
- When your business has multiple forms of income.
So, when you receive the tax return in the mail check whether the gross payments and number of transactions are correct. Moreover, check whether the Merchant Category Code accurately describes your business.
When Printable Form 1099 K issued?
The circumstances require to issue a 1099 K are given below:
Payment card transactions
In limited instances, if you receive any payments of sales volume over $600 through debit, credit, or store-valued cards, then PSE sends you the tax return.
Third-party payment network transactions
If the sales volume over $20,000 with 200 individual transactions through PayPal, Amazon, or third-party networks, then you’ll receive Form 1099 K.
In some cases, you may not receive the form when the payments don’t exceed the minimum threshold requirements. In the prior year, many businesses used to issue 1099 K on behalf of their customers even the payment and number of payments don’t meet the minimum threshold requirement. For instance, if there is a single transaction in the year using a payment card, then the transaction information is reported on the form. As per the IRS rules, the payer must issue the form if the services exceed $600 worth of payments either individual or transactions.
Do you need to issue a 1099 K if you accept nontaxable payments via credit or debit?
No. You’re not required to issue IRS Form 1099 K when you accept nontaxable payments through credit or debit cards. As per the IRS rules, you should not report the nonbusiness-related payments on the information return form. So, it is not advisable to accept non-business payments using payment cards. For instance, if you split rent with your roommate, not a taxable transaction. But you may receive the tax form because the PSE will not be able to differentiate the payment. Moreover, the IRS will send you a notice if you receive the tax form.
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