The 1099-K form is newer to the tax reporting scene in relation to its other 1099 form counterparts. The purpose of the form is to ensure that all businesses that accepted payment methods other than cash/check have reported those amounts appropriately to the IRS.
What is a merchant form 1099-K?
The 1099-K is the IRS’s way of ensuring that merchants report their total sales on their annual tax returns.
Who receives one?
Any merchant receiving payments via credit cards, debit cards, and stored-value cards, such as gift cards. For tax year 2022, the form will be required for entities receiving payments totaling $600 or more. For previous years, the threshold was a transaction count exceeding 200 and sales volume greater than $20,000.
What is reported?
Gross sales paid are reported on the form. Amounts for returns or processing fees are not included. There is also a breakout of card-not-present (CNP) transactions.
FOR REPORTING ENTITIES
What You Can Do Now to Prepare for Filing In January
- Resolve any TIN mismatches. If you filed in previous years, the IRS sent you a list of merchants whose legal name did not match the Taxpayer ID number. These should be resolved now to avoid potential fines. You can follow up directly with the merchant to resolve or use the IRS’s TIN matching system. Once you receive valid data, ensure that you update it at the source so that you do not need to update again in future filing years.
- Clean up contact information for your merchants. Ensure that you have a valid email and mailing address for merchants.
- Verify that you have been accumulating the appropriate information for filing. Whether you are preparing the forms in-house or outsourcing, you will need specific data fields for reporting purposes.
- Determine whether you will prepare the forms in-house or outsource to a third party provider.
If I’m a merchant and receive this form, what do I do with it?
If a tax advisor completes your return, provide it to them along with all other tax documentation. Generally, if you’re an independent contractor or self-employed, your Form 1099-K income will be reported directly on a Schedule C, Profit or Loss from a Business.
How do I verify the numbers reported on the 1099K?
You should be able to tie the total amount of sales back to the gross sales reported on any of your merchant statements. Keep in mind that the volume amounts reported on the 1099-K are gross sales and do not net out any returns or fees charged. Also, keep in that mind that if you have multiple merchant accounts with a processor that all have that same TIN, these accounts have likely been rolled up into a single reporting form.
Does this form include the fees I paid for processing?
No. You should refer to your merchant statements or year-end summary from your processor to find that information.
When and how should I receive form 1099-K?
The reporting deadline is January 31st. Most processors send them via email or make them available in the same place you would access your merchant statements. Otherwise, look for a hard copy mailed to your business/mailing address.
What is MCC on form 1099-K?
This is the “Merchant Category Code” your processor assigned to your merchant account based on the card association guidelines. It is used to classify your business based on the types of goods and services it provides.
Will I still receive a 1099-K if my merchant account is closed?
Even if your account is now closed, you will receive a 1099-K as long as you met the IRS’s minimum reporting requirements for the tax year.