Beginning in 2023, third-party payment networks must file Form 1099-K with the IRS and provide a copy to the taxpayer when the gross payment amount is more than $600. However, not all payments from third parties are taxable. Taxpayers can take steps to prevent non-taxable items from being reported. They also can remedy a third party payment reported in error.
What Should Be Reported on Form 1099-K
Payment card companies, payment apps, and online marketplaces are required to file Form 1099-K with the IRS. And they must send a copy of the form to taxpayers by January 31. Taxpayers should expect a Form 1099-K if they received (1) payments with payment cards, including credit cards, debit cards, and stored value cards (gift cards); and (2) payment of over $600 with a payment app or online marketplace. This includes payments for a personal item or goods sold, services provided or property rented through a:
- peer-to-peer payment platform or digital wallet;
- online marketplace (sale or resale of clothing, furniture and other items);
- craft or maker marketplace;
- auction site;
- car sharing or ride-hailing platform;
- real estate marketplace;
- ticket exchange or resale site;
- crowdfunding platform; or
- freelance marketplace.
What Should Not Be Reported on Form 1099-K
Gifts or reimbursement of personal expenses from friends and family should not be reported on Form 1099-K. They are not payments for goods or services.
Thus, for example, if the taxpayer shares the cost of a car ride or a restaurant meal, is repaid by a roommate for a household bill, or receives money for birthday or holiday gifts, the payments aren't taxable income, and therefore should not be reported on Form 1099-K.
How to Prevent Non-taxable Items From Being Reported on Form 1099-K
The IRS advises taxpayers using payment apps for the above non-taxable items to note these types of payments as non-business in the payment apps when possible.
What To Do if the Taxpayer Receives a Form 1099-K in Error or an Incorrect Form 1099-K
A taxpayer may receive a Form 1099-K in error if the form reports payments that were gifts or reimbursements from family or friends, doesn't belong to the taxpayer, or is a duplicate.
If the taxpayer received a Form 1099-K in error or an incorrect form, the taxpayer should contact the issuer immediately. To locate the issuer, the taxpayer should see "FILER" in the top left corner of the Form 1099-K.
The taxpayer should keep a copy of the original form and all correspondence with the issuer.
If the taxpayer can't obtain a correct Form 1099-K, the taxpayer should report the amount on Schedule 1 (Form 1040), Additional Income and Adjustments to Income as follows: (1) enter the incorrect amount on Part I, Line 8z, Other Income; and (2) enter the adjustment for the incorrect amount on Part II - Line 24z - Other adjustments.
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