tax tips — October 26, 2017

Form 1099-K Explained: The Micro-Payment Middle-Man

by Susannah McQuitty

Form 1099-K explained, with illustration of hands at a laptop keyboard

Freelancers, listen up: If you use a third-party platform to receive payments from your clients, you’re probably going to get a 1099-K in the mail this January.

Like a W-2 or 1099-MISC, a 1099-K is a document with income information you’ll need to enter on your tax return, but there are a few differences that are important to note.

Who is the Form 1099-K from?

Platforms that are used to manage payments between a client and a freelancer are called Payment Settlement Entities (PSE). These PSEs include payment platforms, like PayPal or Square, hiring platforms, and simple service platforms like Uber.

Technically, your clients pay the PSE, and the PSE pays you. That means the PSE is responsible to record just how much you’ve earned over the course of the year. In January, you’ll get a form detailing all that income, and that form is – you guessed it – a 1099-K.

Am I the filer or the payee on Form 1099-K?

You may notice that, instead of having a box for “employer” and “employee,” Form 1099-K has a box for “filer” and “payee.” Confused?

The filer is the PSE, since they file the 1099-K with the IRS before you receive it, and you are the payee, since you were the one who received income.

Didn’t get a 1099-K illustration with notebook

What if I used a PSE but didn’t get a Form 1099-K?

Your PSE is actually only required to file and issue a 1099-K if you used it for more than 200 transactions and earned more than $20,000 during the whole tax year. Fall below that line? You still have to report your income on your tax return, even if you don’t receive a 1099-K.

A few of the best places to look for income records are bank statements and messages about payment between you and your clients.

Does my Form 1099-K income include any adjustments, discounts, fees or refunds?

No, it doesn’t. Your 1099-K lists the total of all your reportable payment transactions. If you have any business-related adjustments, such as discounts, processing fees, refunds, tax, shipping costs, and credits, you’ll need your own records (plus any provided by your PSE, like year-end reports) to deduct these expenses.

When you actually file, make sure you report the gross amount from your Forms 1099-K as business income on Schedule C and your related deductible expenses in the Expenses section of Schedule C.

For more info on taxes for freelancers, check out our Tax Guide!

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