What is a 1099-K and why should I care?

Be On The Lookout: The IRS is planning for a threshold of $5,000 for tax year 2024 

Who gets Form 1099-K

If you take direct payment by credit or bank card for selling goods or providing services – If your customers or clients pay you directly by credit, debit or gift card, you’ll get a Form 1099-K from your payment processor or payment settlement entity, no matter how many payments you got or how much they were for.

If you used a payment app or online marketplace and received over $20,000 from over 200 transactions – A payment app or online marketplace is required to send you a Form 1099-K if the payments you received for goods or services total over $20,000 (5,000from over 200 transactions. However, they can send you a Form 1099-K with lower amounts. Whether or not you receive a Form 1099-K, you must still report any income on your tax return.

Form 1099-K is shared with other taxing entities such as states and counties –
The IRS shares Form 1099-K with the Department of Revenue within multiple states, sharing your virtual sales without your consent. This can lead to a discrepancy between what is reported to the federal government and what is reported to the state. It is important to ensure that when economic nexus is met in each state, that the online sales and subsequent collections are reported to the state department of revenue as they will be provided by the IRS. Failing to do so can result in an open-ended audit with no statute of limitations to prevent the state from collecting back taxes for every year starting from the year the economic nexus threshold was exceeded.