![2015-1099-K-form](https://upload.wikimedia.org/wikipedia/commons/7/70/2015-1099-K-form.png)
In the United States, Form 1099-K "Payment Card and Third Party Network Transactions" is a variant of
Form 1099
Form 1099 is one of several IRS tax forms (see the variants section) used in the United States to prepare and file an ''information return'' to report various types of income other than wages, salaries, and tips (for which Form W-2 is used inste ...
used to report payments received through reportable payment card transactions (such as
debit
Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a credit en ...
,
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
, or
stored-value card
A stored-value card (SVC) is a payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution. This means no network access is required by the payment collection terminals as funds ...
s) and/or settlement of third-party payment network transactions.
Form 1099-K is sent out to payees by a payment settlement entity (such as a bank) if the gross payments exceed $600.
Reportable payment card transactions do not include ATM withdrawals or checks issued in connection with a payment card.
Examples of individuals who would receive Form 1099-K include freelancers compensated via
PayPal
PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers, and serves as an electronic alternative to traditional paper ...
,
Etsy
Etsy, Inc. is an American e-commerce company focused on handmade or vintage items and craft supplies. These items fall under a wide range of categories, including jewelry, bags, clothing, home décor and furniture, toys, art, as well as craft su ...
sellers,
Uber
Uber Technologies, Inc. (Uber), based in San Francisco, provides mobility as a service, ride-hailing (allowing users to book a car and driver to transport them in a way similar to a taxi), food delivery (Uber Eats and Postmates), package ...
drivers who accept credit cards as payment, small businesses who accept card transactions as payment, and in general professionals who accept online or credit card payments for services.
Motivation
In 2006, Americans underpaid their taxes by $450 billion, equal to a 17%
tax noncompliance
Tax noncompliance (informally tax avoision) is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax ...
rate. In response, the
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
has pushed for more third party information reporting.
In the
Housing and Economic Recovery Act of 2008
The United States Housing and Economic Recovery Act of 2008 () (commonly referred to as HERA) was designed primarily to address the subprime mortgage crisis. It authorized the Federal Housing Administration to guarantee up to $300 billion in new ...
, a new requirement was laid out for banks and credit card merchants to report payments to the IRS. This requirement took effect in 2011, and Form 1099-K was first issued in 2012.
It uses third party information reporting (banks and credit card merchants) in order to increase tax compliance and improve IRS tax assessments.
The new requirement specifically does much in the way of increasing tax compliance from
independent contractor
Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any othe ...
s, especially with the increasing size of the so-called "1099 economy".
Filing
Payment settlement entities must send Form 1099-K to the IRS by the last day of February of the year following the relevant transactions, or if filing electronically, by April 1. Form 1099-K may be filed electronically through the Filing Information Returns Electronically (FIRE) system. If a payment settlement entity has more than 250 individual information returns to file in any calendar year, they all must be submitted electronically.
Relation to Form 1099-MISC
Form 1099-MISC
In the United States, Form 1099-MISC is a variant of Form 1099 used to report miscellaneous income. One notable use of Form 1099-MISC was to report amounts paid by a business (including nonprofits) to a non-corporate US resident independent contrac ...
is a variant of Form 1099 used to report miscellaneous income. One common use of Form 1099-MISC is to report payments by a business to US resident independent contractors. In this case Form 1099-MISC needs to be issued only when the total amount paid during the tax year is at least $600. However, the instructions for Form 1099-MISC include a provision that says payments made with payment cards and/or third party network transactions must be reported on Form 1099-K by the payment settlement entity, and that the payer does not need to issue a Form 1099-MISC in this case.
This provision creates a tax loophole. Before Form 1099-K existed, payment card transactions and/or settlement of third-party payment network transactions totaling at least $600 required the payer to file a Form 1099-MISC. However, with this provision, a party getting paid through payment card and/or third-party payment network transactions, seeking to avoid paying taxes, can simply opt to avoid meeting either the 200 transaction or $20,000 minimum threshold needed to file Form 1099-K.
Even if a party doesn't seek to avoid paying taxes, if they don't meet either threshold criteria for filing Form 1099-K, they simply may receive neither a Form 1099-K from the payment settlement entity nor a Form 1099-MISC from the payer. As of 2022, this was changed to match 1099-MISC requirements.
Even with this provision, many payers still choose to file Form 1099-MISC. This means that if the payee meets the minimum threshold for receiving Form 1099-K, they may actually receive both Form 1099-MISC and Form 1099-K and possibly over-report their payments. In any case, this provision necessitates tracking payments separately.
Form 1099-K is sent not only to individuals, but also corporations and tax-exempt entities.
See also
*
IRS Tax Forms
Internal Revenue Service (IRS) tax forms are forms used for taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service of the United States. They are used to report income, calculate taxes to be paid to ...
*
Tax evasion in the United States
Under the federal law of the United States of America, tax evasion or tax fraud, is the purposeful illegal attempt of a taxpayer to evade assessment or payment of a tax imposed by Federal law. Conviction of tax evasion may result in fines and impr ...
*
Taxation in the United States
The United States, United States of America has separate Federal government of the United States, federal, U.S. state, state, and Local government in the United States, local governments with taxes imposed at each of these levels. Taxes are lev ...
External links
Form 1099-K 2016Instructions for Form 1099-K
References
{{reflist, 30em
1099
Year 1099 ( MXCIX) was a common year starting on Saturday (link will display the full calendar) of the Julian calendar.
Events
By place
First Crusade
* January 16 – The Crusaders, under Raymond IV, count of Toulouse (Raymond of ...
1099
Year 1099 ( MXCIX) was a common year starting on Saturday (link will display the full calendar) of the Julian calendar.
Events
By place
First Crusade
* January 16 – The Crusaders, under Raymond IV, count of Toulouse (Raymond of ...