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Form 1099-K explained

A plain guide to Form 1099-K: who sends it, the $20,000 and 200 transaction test for payment apps, and why the amount is often higher than you got.

Published · 4 min read

Form 1099-K is a tax form that reports money you got through card payments, payment apps and online marketplaces. The company that handled the payments sends it to you and to the IRS.

The amount on the form is often higher than what reached your bank. That is because the form shows the gross amount, before refunds and fees.

The short version

Words to know

Two kinds of senders

Card processors report your card payments with no minimum. The $20,000 and 200 test applies only to TPSOs (IRS).

For a TPSO, both parts must be true. $30,000 from 150 sales does not pass the test. $15,000 from 400 sales does not pass either.

You may remember lower limits from the news. The One, Big, Beautiful Bill Act put the $20,000 and 200 test back (IRS).

Why the number is too high

Box 1a shows the gross amount, with no change for fees, refunds, discounts, shipping or other amounts (IRS).

If a customer pays $100 and you refund $20, the form still shows $100. If the platform keeps $12 in fees, the form still shows $100.

The form is a report, not a bill. Your income comes from your books.

An example

Jonah makes ceramics. (He is an example, not a real person.) In January 2027 he gets two forms for 2026: $8,400 from his card processor and $24,600 from a marketplace. That is $33,000. But his bank deposits from both are only $28,490.

His books show why:

Card reader Marketplace
Gross sales (on the 1099-K) $8,400 $24,600
Refunds ($200) ($1,100)
Fees ($260) ($2,950)
Deposited to the bank $7,940 $20,550

The $4,510 gap is $1,300 of refunds and $3,210 of fees. Refunds lower his sales. Fees are a business expense. He reports gross sales that match the forms, then takes off refunds and fees. See Schedule C explained.

If he had recorded only his deposits as sales, his sales would not match the forms. A gap like that can cause an IRS letter.

Personal money on the form

A 1099-K should not include personal payments, such as a friend paying you back for dinner.

If yours does, ask the company that sent the form for a corrected one. Its name is in the upper left corner. If you cannot get a correction, you can show the amount on Schedule 1 as other income, then take it back out as an adjustment. Label both “Form 1099-K received in error”. The net effect is zero (IRS). For other mistakes, see what to do if a 1099 is wrong.

The best fix is a separate business account on each payment app.

A Righto tip

Righto imports your bank and card statements (CSV, OFX or PDF), so every payout is in your books. Record sales, refunds and fees in separate categories. Then the Profit and Loss report shows each one, and checking a 1099-K in January is a short task.

Common questions

Do I owe tax on everything on my 1099-K? No. You owe tax on your profit. Refunds, fees and personal payments in the gross amount are not profit, but your records must show them.

I made less than $20,000. Do I still report it? Yes. All business income is reportable, with or without a form.

I paid a contractor by card. Do I send them a 1099-NEC? Generally not for those payments. The card company reports them on Form 1099-K (IRS).

What to do now

  1. Download a sales report for this year from each processor and marketplace.
  2. Check that your books show sales, refunds and fees apart, not just deposits.
  3. Move personal payments out of business payment accounts.
  4. In January, compare each 1099-K with that report before you file.

Righto is free, easy to use and needs no account.

Sources

Righto gives general information, not tax or legal advice. Ask a tax professional about your business.