Posted by James Financial Services Inc

Form 1099-K / Merchant Card and Third Party Network Payments.

Form 1099-K / Merchant Card and Third Party Network Payments.

What is Form 1099-K?

Internal Revenue Service (IRS) Series 1099 forms help taxpayers report money received from various sources in addition to salary. Form 1099-K, "Merchant Card and Third Party Network Payments" is the IRS form that taxpayers receive for reporting certain payment transactions. If you are self-employed or an independent contractor, you are to report 1099-K income on Schedule C of the Income Tax Return 1040.


Key Points to Note

  • You will receive a 1099-K if your monetary value or the value of your business transactions exceeds a certain limit during the year.

  • Various conditions may mean that special precautions need to be taken in connection with 1099-K.

  • If there is an error on the form, such as the social security number instead of the corporation tax number, request a correct form from the settlement entity.


Who Needs a Form 1099-K?

You must receive Form 1099-K by January 31 if you have received payments for payment card transactions (including debit cards, credit cards, stored value cards, or PayPal) and/or settlement transactions involving third-party gross payments over $ 20,000 and over 200 transactions. Usually, high-volume online sellers typically file their taxes with a Form 1099-K.

You will get a Form 1099-K from each Payment Settlement Entity (PSE) from which you received reportable payment transaction income in the previous year. This means a third-party payment card transaction or a network transaction:

  • Payment card transaction indicates any activity in which a payment card or any account number or other identifying information associated with a payment card is allowed as payment.

  • Third-Party Network Transaction indicates any transaction settled through a third party payment network, but only after the total exceeds the above limits. 

The gross value of a reportable payment does not include credit adjustments, cash equivalents, discount amounts, commissions, redemptions, or any other amount.


How to Read Form 1099-K

The business income shown on your tax return must correlate to the values in Form 1099-K. Check your card payment receipt records and merchant statements to confirm that the amount shown on Form 1099-K is correct. Also, check your records to make sure your gross income is correct. Did you report income for all payment methods received, including cash, checks and debit cards, credit cards, and stored value? Supporting documentation is essential.

Special measures may be required for Form 1099-K. Is the beneficiary's tax identification number (TIN) incorrect? Does the merchant category code accurately represent your business? Is the number of payment transactions incorrect or the gross amount of the 3rd party card/network transactions? Does the form belong to someone else? If it belongs to someone else, contact the PSE listed on the form to try to determine why you received the document. The name and phone number should appear in the lower-left corner of the form.

If there is an error on the form, such as your social security number instead of your company's TIN, request a PSE's corrected form. Please retain a copy of any corrected 1099-K you receive, as well as all correspondence with PSE.


Other Points:

  • If you allow your customers to receive a refund when they use their debit card to make purchases, the 1099-K you receive will include those cash amounts as part of your gross payment card transactions. Typically, you wouldn't include cashback in your gross income on your tax return.

  • If you sold or bought your business during the year, the form could include payments for transactions made before the purchase or after the business's sale.

  • If you have shared your credit card terminal with another person or business, 1099-K will include payment card transactions held by the person who shared your terminal, in addition to your payments. If necessary, you must send and provide the appropriate disclosure statement for each person or company with whom a card terminal has been distributed. The disclosure statement must include the full amount of the payment card transaction and any other income belonging to the other person or company.

  • Suppose your business structure has changed during the year, for example. In that case, when you have joined or moved from one business to one business or vice versa and continued to use the same card terminal, the amount may be 1099- K does not correspond to the fees of the new entity. 


Bottom Line

Form 1099-K is an important form for reporting business income on your tax return. It contains a lot of information, so make sure everything on the form is correct. Otherwise, you might have problems. If you have questions, please contact the settlement body and/or work with a specialist.


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