Merchant 1099-K’s: Everything You Need to Know

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.


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.

Proposed new MCC for Guns & Ammunition

Everyone is talking about the new Merchant Category Code (MCC) for sellers of guns and ammunition.

Let’s discuss why we have MCC’s, what they can be used for, and then let you draw your own conclusions about whether this is a meaningful solution for the problem the greater powers set out to solve.

The card brands use MCCs to classify businesses based on the types of products or services they provide. They are set by the International Organization for Standardization.

Card brands, issuers, and acquirers use them to categorize, track, and sometimes restrict transactions. They can be used for tax reporting. They can be used for interchange qualification.

Why would we want to put a certain business in its own category?
➡️ Prohibit a certain business type from accepting payments or categorize it as high risk.
➡️ Issuers can decide they do not want to allow transactions on their card for a MCC and block that transaction from being accepted. The most common example of this is using a health care savings card – you can use it at a qualifying healthcare provider’s practice but not to buy a Big Mac from McDonalds.
➡️ Charge a special interchange rate for that MCC.
➡️ Set special chargeback rules for a given MCC.
➡️ Provide rewards to cardholders based on the type of purchase
➡️ Give certain business types the ability to charge a convenience fee.

And lastly, when we categorize anything at all, we do it for the purpose of data collection and analytics. Previously, we had a haystack full of “sporting good” providers, now we can easily pick out all of the gun and ammo needles within.

But while an MCC can help us categorize the stores that are selling these products, it does nothing to provide visibility into the actual products being purchased. It tells us where a cardholder spends money, but it doesn’t tell us exactly what they purchased. It could be an assault rifle or a child’s BB gun— that type of reporting will not be accomplished with this MCC.

Now you decide… Will there be sweeping changes/impacts for gun dealer payment acceptance?