What is a 1099-K and will your business receive one this year? Important changes to know NOW
Tax time is coming, and one of the most confusing things entrepreneurs deal with during tax season is form 1099. But, believe it or not, there is more than one kind of 1099. AND, as of the end of 2024 there has been a major change with one particular kind: form 1099-K.
But what is a 1099-K? If you’re an entrepreneur, what does this mean to you? Let’s talk about that now!
What is a 1099-K?
Now, there are 1099s that you give to contractors who you’ve paid more than $600 per tax year. Then there are the 1099s you receive as a business owner. This is where the form 1099-K comes in.
A form 1099K is a report of payments you received for goods or services you sold during the year. As a business owner, you would receive a 1099K if you have a business merchant account(s), and you receive funds from that account for goods and services sold.
What qualifies as a “merchant account” for 1099-K purposes?
Per the IRS’s website: payment card companies, payment apps and online marketplaces are required to fill out Form 1099-K and send it to the IRS each year. They must also send a copy to you by January 31.
Merchant accounts could be payment processing apps like PayPal, Stripe, Square, or QuickBooks Online (all of which many business owners use, especially online business owners). So these business merchant services will automatically generate 1099-K forms for you.
Where can I find any 1099-K Forms I might be receiving?
If you expect to receive a 1099-K, you can normally locate them under the “tax documents” section for each of the payment processors you use. I advise checking in with all of them, as you aren’t always notified via email when you get them.
Now, here’s the big change with form 1099-K for 2024…
If you’ve never gotten a 1099-K form before, you might this year. That’s because the IRS has changed their reporting threshold for 1099-Ks.
Prior to 2024, the IRS 1099-K threshold applied to merchant accounts based in the U.S. and having $20,000 USD in total gross volume and 200 transactions. For example if you made $200,000 through a payment processor but only had 150 transactions, you would not receive a 1099-K.
BUT, the IRS has changed the 1099-K threshold for tax year 2024.
Taxpayers will receive a form 1099-K for tax year 2024 if their gross amount of reportable card payments is $5,000 or more. REGARDLESS of the number of transactions.
This is a change that has happened very recently, but it’s been a long time coming. Since 2009, the IRS has been looking for a way to send out 1099-Ks to anyone receiving $600 or more per tax year through payment processors.
(This might sound familiar as $600 is the threshold for reporting money paid to contractors that would require you as the business owner to send a 1099.)
This change has been on again, off again with the IRS. But now, as of 2024, the IRS has managed to change the rules. So now, if you have made $5000 or more via payment processors, regardless of the number of transactions, you will receive a 1099-K.
What does this mean for business owners going forward?
For 2024, you will receive a 1099-K if you made $5000 or more via payment processors. From what I have heard, the threshold is set to go down in 2025 to $2500 per year. In 2026, it’s going to be $600 or more, which was the original goal. . So be sure to check all of your records, make sure you download that form, and save it and include it with your taxes.
Of course, this is a developing situation, so check back here for updates as we go along!
What do you need to do right NOW regarding 1099-Ks and your business?
If you have not received a 1099-K previously in your business, you might be getting one this year. So make sure you check all of your apps and payment processors accordingly. That is, check your PayPal account, Stripe, Square, and other Credit Card processors. Log in and go to the “Tax Documents” tab or section, and check to see if you’ve received this form.
Payment processors are required to send 1099s to you by January 31st, so make sure you don’t miss them! Remember, that this form will be reported TO the IRS, and a copy will be sent to you, which you’ll need to include with your taxes.
So, that’s the breaking news from the IRS. Does it affect you? Now is a good time to ask any and all questions about 1099-Ks, and how they might affect your taxes this year. If you have any further questions, by all means let me know in the comments, OR feel free to book a consult call with me. I’m here to help!
Until next time,
Love, Light, and MONEY, Honey…
Kaylee