Business owners that process credit cards via a 3rd party network must pay close attention to IRS Form 1099-K, which is an informational form that reports income that is generated from sources distinct from salaries, wages, or tips.
Why Is The 1099-K Important?
The 1099-K Form is the document the Internal Revenue Service requires for PSEs, or payment settlement entities, which are used for reporting credit card transactions. It is one of the newest 1099 tax forms and was introduced in 2011. This form should be received by January 31st, which is the filing deadline for those who have received applicable payments.
Aside from credit card transactions, this form also includes any settlements which are made involving 3rd party transactions, especially if the total is more than $20,000 or you handled in excess of two hundred transactions.
What Info Does The 1099-K Include?
The 1099-K Form is comprised of numerous pieces of essential information, such as:
- Your contact details, such as your phone number and address
- Your TIN, or taxpayer identification number, which can be either an employer identification number or social security number
- The amount of gross payments you earned
- Your MCC, or merchant category code, which is a number containing four digits that will designate your services or goods
How Should 1099-K Forms Be Handled?
The first thing you’ll want to do is verify that every piece of information displayed on the form is accurate. Next, compare your total payment amount which has been reported with the records for your credit cards or merchant statements. Verify that the reported amount aligns with your records. If any errors are detected, contact the sender promptly. Make sure that both the merchant category code and Tin are correct, and once you’ve verified that everything is accurate, keep copies for yourself. For those that are self-employed, any income which is reflected in the 1099-K must be reported in Schedule C.
What Should You Do If The Amount In The 1099-K Is Incorrect?
Those that receive a 1099-K form that has a gross payment amount that seems inaccurate must double-check the numbers. Remember that while the 1099-K will report the gross amounts, the monthly statements might only report net earnings. If the numbers still don’t add up, you’ll want to get in touch with the PSE which is listed in the form. They will be able to assist you in determining the irregularity. All your records should be kept to document the discrepancies and contributions.
How Does The 1099-K Differ From The 1099-MISC?
While the 1099-K form is designed to demonstrate the amount received from 3rd party networked transactions and credit card processing, the 1099-MISC form will showcase the amounts you earned from rents, awards, prizes, and related income payments. Any payment that is received in the form of a check, ACH deposit, or cash will fall under a 1099-MISC. And for transactions that involve a 1099-K, you won’t have to send it to a party you’ve already paid since the 3rd party network or credit card processor will send it on your behalf.
