Have you made payments to an independent contractor using a payment card? Issue a 1099 K Tax Form to the independent contractor for payments made via credit or debit card. Form 1099 K was the youngest of the 15 different types of 1099 forms. As we know that, Form 1099 K was started using form 2011which caused a good deal of confusion. Read the entire article for Form 1099 K Basic Information.
To clear the confusion, we’ve put together the basic information about the 1099 K Tax Form. We’ll let you know about who files the Form, who receives a 1099 K Form, and how to report it on your taxes.
What is a 1099 K Tax Form?
1099 K Tax Form used to report payments processed by payment settlement entities. A PSE can process the payments in two Forms, either through payment cards or through third-party network transactions.
There was a lot of unreported income by businesses at one point, and the IRS began using Form 1099 K to check the transactions. With the help of the 1099 K Tax Form, IRS keeps a record of all payment transactions received from payment cards and third-party network transactions. It reports the gross amount of all reportable payment transactions. A PSE files the Form after the end of the calendar year, for the previous year’s transactions.
Who files the 1099 K Form?
Form 1099 K is filed by:
- Credit card businesses
Credit card businesses who process their payments using debit cards, credit cards, Visa required to file Form 1099 K.
- Third-party settlement organizations
PayPal, Etsy, eBay, and Amazon considered third-party processors. Third-party settlement organizations only required to file Form 1099 K:
- When the transactions in a year more than $20,000.
Over 200 transactions in total.
If you have a credit card merchant account, through which you process 150 transactions. The total transactions $15,000, then you’ll receive a 1099 K Form.
Your transaction via PayPal is about 200 $100, so you’ll receive a 1099 K Tax Form.
Who receives a 1099 K?
Recipients of a 1099 K mostly contractors:
Who has received payment using a TPSO or third-party payment network? For example, an Etsy seller would receive a 1099 K Form from Etsy. As Etsy has concluded it satisfies the criteria for a TPSO.
The seller would also need to meet the minimum 1099 K thresholds for processing 200 transactions and $20,000 in gross volume.
Whether the payee receives a 1099 K or not, they are still required to report that income to the IRS and pay taxes accordingly.
Should you issue a 1099 MISC or 1099 K?
Many of the taxpayers were confused when filing the 1099 K Tax form. Because both the Forms start with 1099, it can be easy to confuse. However, they have important distinctions. While they are similar in the fact that they both report income. But they are different in regards to the type of income and who sends them. As mentioned above, credit card businesses and third-party processors need to send out the 1099 K form to report bank card income. On the other hand, 1099 MISC Forms are sent out by the businesses that pay an independent contractor $600 or more in a given year.
As online and digital payments become more prevalent, many businesses issue 1099 K Form. Businesses may need to issue a 1099 K Form which reserves for electronic payments and payments by credit cards to contractors. The reporting threshold for 1099 K Form is much higher than for 1099 MISC.
1099 K Tax Form processing options
Business individuals need to begin planning for 1099 K Form filing and delivery early. Because it can easily turn into a huge headache if the deadline rolls around. We suggest you prepare as early as possible and be aware of your options:
- Handle filing and delivery on your own
With this option, you can compile, print, deliver, and file all the 1099 K Forms on your own. You’d probably want to consider this option if you expect to organize and issue very few 1099 Forms.
- 1099 K filing service
Services like Form 1099 online exist to help you with this process of gathering information. This is the better process for businesses that issue 1099 K Form with dozens to thousands of recipients.
- Hire a professional tax advisor
They can help you determine whether you have a reporting obligation for payments made to contractors.
Reporting 1099 K Form for small businesses
The reporting requirements of a 1099 K Form are straightforward. If you’re a small business that operates under a sole proprietorship, you’ll report income on Schedule C. In case, if you have multiple 1099 K Forms, you may wait until February 1st, 2021 to ensure that you’ve received all the forms.
Since the 1099 K Form is an accountability tool for the IRS. Also, you need to make sure that your business income reported reflects the accurate amount you received. Online transactions and income received in the form of cash and checks are reported or not.
Tax forms can be confusing, and they may be challenging to understand. If you’re feeling overwhelmed with taxes, make sure you have a trusted accountant on your team. Form 1099 online does just that, delivering time-saving efficiencies to businesses during the filing season. Also, File your 1099 Forms with us easily and conveniently within a few minutes. Therefore, this info about Form 1099 K Basic Information.