As a small business owner, navigating the landscape of digital payments is essential, whether through platforms like PayPal®, Venmo®, Zelle®, or using credit cards for transactions with vendors and contractors or to cover other expenses. Accepting payments through these channels may also be part of your business operations.Have you ever received a 1099-K form from these platforms or credit card providers? It is important to note that you may now be required to issue these forms too.

Understanding the Purpose of Form 1099-K

The 1099-K form, titled "Payment Card and Third-Party Network Transactions," serves as a report detailing the total gross or unadjusted amount of all transactions processed by Payment Settlement Entities (PSE) to each payee over a year.

What Transactions Qualify?

It's key to remember that IRS reporting obligations only cover payments for goods and services made to businesses. Personal transactions are exempt from this requirement.

Issuance Thresholds for 1099-K

For the 2024 tax year, the IRS plans to introduce a $5,000 threshold as a step towards enforcing the $600 reporting requirement established by the American Rescue Plan (ARP). Third-party settlement organizations (TPSOs) must file a
1099-K form with the IRS and provide a copy to the recipient if the total transactions exceed $5,000 within the year. This applies to many digital transactions, including those made through peer-to-peer payment platforms, digital wallets, online marketplaces, and more.

Who is Responsible for Filing Form 1099-K?

Payment settlement entities (PSEs), which include merchant-acquiring entities for payment card transactions and TPSOs for third-party network transactions, are tasked with this reporting. Merchant-acquiring entities are typically banks or credit card companies that process transactions, while TPSOs are responsible for payments to payees within various online platforms.

Exclusions from Filing Form 1099-K

Certain entities, like Automated Clearing House (ACH) systems, in-house accounts payable departments, and health carriers, do not fall under the TPSO category and are thus exempt from issuing Form 1099-K.

Reporting Requirements for Transactions

All payment card transactions need to be reported on Form 1099-K by merchant-acquiring entities without exception. Meanwhile, TPSOs must report payments exceeding $600 for goods and services as the ARP dictates, with a planned threshold of $5,000 for the 2024 tax year.

1099-K or 1099-MISC or 1099-NEC

Your reporting requirement depends on different factors, including how the payment was tagged and the type of account profile receiving the payment. You should check with the payment processing company to confirm how they classify payments made during the year using their network. Once you have verified that the payments are being reported on the Form 1099-K, you should not issue a Form 1099-NEC or 1099-MISC to report the duplicate payments.

International Payments

Reporting requirements may vary for payments made to offshore accounts outside the United States. It is advisable to consult the IRS website for specific guidance.

Business-Related Payments

Only payments related to the course of business for goods and services need to be reported. Personal transactions, such as gifts or reimbursements among friends and family, should not be reported on Form 1099-K.

Payments via Zelle®

Zelle® operates differently by acting as a messaging service between financial institutions and individuals without settling funds directly. If you pay a contractor $600 or more during the year using Zelle®, you are responsible for issuing a 1099-NEC or 1099-MISC form, not a 1099-K.

When to file Form 1099-K?

Form 1099-K is due to the IRS by Feb 28th if filed by paper, and March 31st if filed electronically. Recipient copies are due by Jan 31st.

If you need to issue a 1099-K, we have the solution!