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Published: January 13, 2020

Income Taxation 101: All About IRS Form 1099 K

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DISCLAIMER: This article is for information purposes only. It is not intended to constitute tax advice. Please consult your CPA or Tax Specialist for any questions relating to your filing and tax liability.

Merchants that operated their business long enough already know the drill; as soon as January hits, it’s time to work on those federal income tax obligations. For merchants that accept and process debit and credit card transactions, they would also expect for something called a Form 1099-K, which merchants needed to submit to the Internal Revenue Service (IRS) as part of the entire income reporting process.

Form 1099 K is used to report income generated from Payment Card and Third Party Network Transactions. This was created under the 2008 Housing Assistance Tax Act to help ensure that businesses, particularly online retailers, are accurately reporting their income for tax purposes. Specifically, the form should be directly submitted to the IRS by all payment settlement entities on behalf of their merchants. 

Their Form 1099 Ks must also record the following transactions, as mandated by the IRS:

  • all payments settled through payment card transactions
  • all payments through third party network transactions whose gross payments exceed $20,000 and made in more than 200 transactions

When we talk of payment settlement entities, we actually refer to two groups: the payment card networks (American Express, MasterCard, Visa) and third-party payment processors (Amazon Pay, PayPal, Stripe). If you received payments from these card networks, then expect to receive a Form 1099-K from each one of them regardless of the transaction amount. You can also expect a Form 1099-K from your third-party payment processor if transactions met the above-mentioned criteria.

What Does Form 1099 K Contain?

Form 1099 K only reports gross income so it does not include adjustments for credits, cash equivalents, discount amounts, fees, and refunded amounts. Since the form only reports gross payments, you might have to look into ways of legally reducing your tax liabilities from this income.

The form requires basic information such as the filers’ name, address, contact numbers, and Employer Identification Number. It also contains reports on card not present transactions, merchant category codes, number of payment transactions, federal income tax withheld, and state information.

What do I do

How does Form 1099 K Work?

If you are a merchant, the forms must come from the payment settlement entities you worked with and you must receive them on or before January 31. As merchants, it is important to check your card receipts and merchant records to confirm that the amounts reflected on your Form 1099-K is accurate. If you discover any inconsistency, immediately contact the issuer so a corrected Form 1099-K can be issued if needed. 

Once this is cleared, you can now start using the form as part of your business tax file to report your income and gross receipts to IRS on your tax return. You are then expected to submit the form to IRS on February 28, for paper filing, or March 31, for electronic filing. 

Once this is done, IRS then verifies that your tax returns are both accurate and complete through their Taxpayer Identification Number (TIN) Matching Program, an Internet based pre-filing e-service that verifies your TIN against IRS records, and a Name Control System, which uses a sequence of characters derived from a taxpayer’s name to match records.

It is important for businesses to properly report all sources of income to avoid penalties and the possible underpaying or overpaying of tax dues. For merchants still starting out, it is a great step towards a more responsible reporting of your sales and income. Better settlement of your income tax obligations also makes you a better and more responsible taxpayer. 

As a premium payment solutions company, Agapay has all the expertise of accepting and processing payments and accurately reporting this income on your behalf. If you need more information about how to get your Form 1099-K, talk to us at 800 644 3909 or reach us here.

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