So, the end of January rolls around and you’ve received a strange 1099 form and are wondering if it is taxable. The form is called a 1099-K and it says it’s for “Payment Card and Third-Party Network Transactions”, as if that couldn’t be vague enough. I imagine the main question you have is “Is this taxable?”, and perhaps “Why did I get one?”. Well, I will explain this form in detail below and give you the scoop on how it will affect your taxes.
So, What Is a 1099-K?
Simply put, Form 1099-K is an information return, like the rest of the 1099’s. However, being that it is informational, this does not mean you can throw it out. Instead, this simply means that someone is reporting transactions to the IRS on your behalf. In this specific case it is for 3rd party network transactions and payment card transactions.
Basically, this is credit card transactions from 3rd party payment services like Stripe, Venmo, and PayPal. This also includes other “payment settling entities”, which can include things like eBay. EBay, I must assume is probably the most relevant issuer of these 1099 forms. Anyways, before 2021 the reporting threshold was $20,000 and more than 200 transactions. However, with the passage of the American Rescue Plan Act of 2021, this reporting requirement was drastically reduced to $600 and no transactions number minimum. This means that if you sell things on eBay, Poshmark, etc., you may be more likely to receive this form starting in 2022.
Are Non-Business Items Included on 1099-K?
One thing to note is that form 1099-K doesn’t distinguish between if someone is selling personal items or running a buying and selling business (think eBay flipping). If you were selling personal items, be sure to follow all tax rules for gains and losses. For example, say you sold a couch for $2,000 and you bought it for $1,200. The $800 in profit (sell price minus original purchase price) would be a capital gain and that income would have to be recognized.
However personal losses are not deductible, but if you have a personal loss then be sure to report it anyway because the IRS will assume the sale price is a gain instead of a loss. Just make sure to have an adjustment to remove the loss on Form 8949. Anyways, if any personal items show up on a 1099-K, don’t panic just be sure to report it as you would have in previous years (accounting for any other 2022 tax changes) and keep good records of what was sold, when it was sold and what the basis was.
1099-K’s Key Boxes
Box 1a which is the gross amount of card payments and third-party network transactions. Box 3 which will have the total number of transactions in the current year. Another important field is Box 4 which is the amount of federal taxes that are withheld by the payment processor. Box 5 which is split into 12 months and will have your payments broken out by month. Also, other boxes are for any card not present transactions, merchant category code and optional state tax fields.
So, is it taxable?
It depends. Normally these forms were issued to businesses and due to the formerly high threshold for reporting. However, like I stated earlier in the post, with the passage of the “American Rescue Plan Act of 2021”, this reporting requirement is being dropped significantly. In theory, this form doesn’t increase your taxes by itself. Simply it reports transactions that will probably be taxable. Therefore, it is important to make sure that you can verify the numbers being reported on the form accurately. If you feel like this form in incorrect, in any way, it is important to get it corrected as soon as possible.
Conclusion,
In summary the 1099-K used to be a very uncommon form to receive. It was mostly issued to people who ran “flipping” businesses and utilized payment processors to facilitate transactions. These transactions would get reported to the IRS and the business owner would receive a 1099-K for them. However, with the new reporting requirement for 2022 many more of these will be issued. The form itself is just stating the gross amount of money and transactions that were processing through these “third-party processors”.
However, since this form might not differentiate between personal and business transactions we cannot say for sure if personal items might end up on the form. If that happens don’t panic and report these transactions like you normally would and always keep good records. Also, perhaps you would like an experienced professional help you keep track of your eBay business. It just so happens that I am a CPA that loves to help save clients time and money. If that sounds interesting to you, please contact me to help you save time and money on accountant fees.