business owners are unaware of this new reporting requirement, which could lead to unexpected tax complications.
In this article, learn everything you need to know about 1099-K—how it affects your taxes, common mistakes to avoid, and why staying on top of this form could save you from costly errors.
What Is a Form 1099-K and Why Should You Care About It?
Form 1099-K, officially titled "Payment Card and Third-Party Network Transactions," is a tax form issued by the IRS to report payments received for goods or services through payment cards and third-party networks like PayPal, Venmo, Stripe, and Etsy.
For small business owners, the 1099-K is significant because it tracks income processed through these platforms, ensuring that all business transactions are accurately reported to the IRS. If you accept payments through credit cards, payment apps, or online marketplaces, you will likely receive a 1099-K form for income earned during the 2024 calendar year.
The form reports the gross amount of transactions processed through these platforms, including shipping fees, sales tax, and processing fees. It is important to note that the IRS receives a copy of the form, so discrepancies between reported income and the 1099-K amounts could trigger an IRS notice or audit.
Who issues the 1099-K?
You’ll receive a 1099-K from:
- Payment processors (like Visa, MasterCard, Square)
- Apps and online marketplaces (like Etsy, PayPal, Venmo)
They’re required to send the form if you meet the reporting threshold for third-party payments. If you accepted card payments, they must report all income, even if it’s a small amount.
Difference between 1099-K and other tax forms like 1099-NEC and 1099-MISC
Here’s how it breaks down:
- 1099-K = Reports payments for goods or services processed through payment apps or payment cards.
- Form 1099-NEC = Used to report business income paid directly to independent contractors (typically $600 or more).
- Form 1099-MISC = Reports payments like rent, prizes, or legal settlements.
If you receive both a form 1099-K and a form 1099-NEC, make sure you don't double count your business income on your individual income tax return.
Further Reading: Learn about IRS Form 1099-K for the 2025 tax season
How is 1099-K income reported for taxes in 2025?
Gross payments versus taxable income
When you receive a form 1099-K, the income amount reported is gross, it includes shipping fees, sales tax collected, and processing fees.
You’ll only pay federal income tax on your net profit, not the gross. You’ll adjust the total income when you report payments on Form 1040 or your business tax forms.
Common mistakes in interpreting the form
Some business owners think the full amount is all taxable income, it’s not!
Common traps:
- Forgetting to subtract returns, refunds, or chargebacks.
- Missing out on tax deductions like transaction fees.
- Including personal payments that shouldn’t have been on your 1099-K form (yes, it happens with PayPal or Venmo if you don’t separate business from personal).
How the IRS uses 1099-K data to verify your tax return
The IRS uses the form 1099-K reports to check that you’ve reported income correctly. If the amount you claim on your income tax return is less than what’s reported on a Form 1099-K, expect the IRS to send you a notice. That’s why you’ll report your actual business expenses properly, not just blindly rely on the form.
What Are the 2025 IRS 1099-K Reporting Requirements You Must Know?
Starting tax year 2024 (filed in 2025):
- If you receive a form 1099-K from a payment app or online marketplace, it happens when you cross $5,000 in payments for the year 2024.
- If you accepted payments by credit or debit card, you’ll receive form 1099-K regardless of the amount. Even a $1 payment from a payment card can trigger a form.
The 1099-K threshold is now stricter to capture more business income from apps and online platforms.
Who must file a 1099-K form and when will you receive it?
You personally don’t send a 1099-K; the payment processor or marketplace must do it.
- Deadline: They must send you a 1099-K by January 31, 2025 for all payments collected in tax year 2024.
- You’ll receive it if you sell products, services, or run a business that accepts card or app payments.
How do you report 1099-K payments if you’re self-employed or a small business owner?
If you’re a sole proprietor:
- Use Schedule C attached to your Form 1040.
- List the total business income amount, including payments reported on a form 1099-K.
If you’re filing as an S-Corp or Partnership:
- Report on Form 1120-S or Form 1065.
Make sure the business expenses you claim are well-documented. That way you report 1099-K totals accurately while lowering your income tax legally.
How do deductions and expenses apply to 1099-K income?
Don’t leave money on the table. Deduct legitimate costs like:
- Payment processing fees (Stripe, PayPal fees)
- Refunded transactions or chargebacks
- Shipping costs paid for delivering goods
- Discounts offered to customers
- Advertising costs on marketplaces like Etsy
Keeping track of this stuff could save you thousands. It’s critical for preparing your tax file and reducing additional tax exposure.
How do you correct an error on your Form 1099-K?
If your 1099 form has mistakes:
- Compare it to your own transaction reports.
- Call the payment app or online marketplace that sent the form 1099-k (their contact info is on the form).
- Request a corrected form immediately.
Still waiting for the correction? File your income tax return with your accurate numbers—must report correct info, even if the form isn't fixed yet.
What are the consequences of not reporting 1099-K income accurately?
Missed business income or mistakes on tax information can lead to:
- Accuracy penalties (up to 20% of unpaid taxes)
- IRS audits (triggered by mismatches)
- State-level audits if irs or state reporting doesn’t align
You’re running a business. Act like it. Treat your 1099-k reporting seriously to avoid headaches later.
Importance of proper bookkeeping and accounting practices
Running good books isn’t optional anymore:
- Use separate business and personal accounts (especially for PayPal or Venmo).
- Reconcile your deposits monthly.
- Save every transaction receipt from apps and online marketplaces.
Good bookkeeping makes tax preparation easier and protects you if the IRS ever asks for proof.
Further Reading: Explore why Form 1099-K is an important document for many business owners
Final Insights: Master 1099-K Reporting for a Smooth 2025 Tax Season
Getting your 1099-K form right is key to a stress-free tax year 2025. If you receive a 1099-K from PayPal, Venmo, or an online marketplace like Etsy, make sure you report payments accurately and claim your tax deductions. Clean bookkeeping and smart planning help you stay compliant, cut your income tax, and keep more of your business income.
How can Taxfyle help?
Finding an accountant to manage your bookkeeping and file taxes is a big decision. Luckily, you don't have to handle the search on your own.
At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.
