Tax season is underway and one of the most buzzworthy documents has been Form 1099-K. If you’re used to filing with Form 1099-K, it won’t surprise you. However, some receiving the form might not understand why they received it or what they should do next when filing their taxes.
GOBankingRates spoke with Mark Steber, chief tax information officer at Jackson Hewitt Tax Services, to learn more about this document and how it may impact your tax filing plans. Here’s a quick and easy primer for what Form 1099-K means for your taxes.
What Is Form 1099-K?
Form 1099-K, Steber said, is used to report income from buyers whose clients used online payment services or payment cards.
Common payment services may include:
- Visa/Mastercard debit cards linked to bank accounts
- Major credit cards including Visa, Mastercard, American Express and Discover
- Gift cards
Payment services may range from:
- PayPal
- Venmo
- Zelle
- Cash App
- Apple Pay
- Google Pay
Who Receives Form 1099-K and Why?
The most common reason taxpayers receive this form are uses of third-party payment networks. This can include taxable transactions such as buying goods or paying for services along with nontaxable transactions like paying bills or moving money to another account.
The thresholds are $20,000 in gross payments and more than 200 transactions.
Form 1099-K may have errors when nontaxable categories are included and the payer didn’t add a note about what the payment was for. For example, Steber said, someone paying for a cleaning service through Venmo should include a note marking the payment, month and day and purpose.
When reviewing Form 1099-K, Steber recommends asking the following questions:
- Was the income reported on any other form?
- Is this your only account and does it have personal payments as well?
- Did you sort out what is business and personal sales at a gain?
- Do you know what is incorrect because it was personal and shouldn’t be included on the form?
- Do you have any other income not reported on Form 1099-K?
- Do you have expenses against your business income?
What about income that is not reported on Form 1099-K? Steber said this income is also taxable and it isn’t new.
What Happens After You Receive Form 1099-K?
Once you receive Form 1099-K, Steber recommends determining what is personal and what is business. You can do this using Schedule C. Those with rental properties will use Schedule E and those with farm income will use Schedule F.
“Out of the personal income reported, was any for an item sold at a gain? Report it as a capital gain transaction on Schedule D/Form 8949,” Steber said.
Other personal income should be entered on Schedule 1 Line 8z and entered as an adjustment under ‘Other Adjustments’ Schedule 1, Line 24z.
More From GOBankingRates