Understanding Form 1099-K: What It Means for Your Taxes (Probably Nothing)

What Is Form 1099-K?

Form 1099-K is issued by third-party payment processors like PayPal, Venmo, and Stripe to report total payments received through their platforms. The IRS requires this form for transactions exceeding certain thresholds ($5,000 for 2024).

• You may receive it for various reasons. Selling goods online, freelancing, or receiving business payments over the set threshold can trigger a 1099-K.
• Personal transactions are often reported. Form 1099-K includes proceeds from personal use items. Payments from friends or shared expenses may also appear even though they should not be included (often due to incorrect category selected on the platform).
• Receiving a 1099-K does not affect your taxable income. In theory, you as a taxpayer are responsible for tracking all cost basis and proceeds from sale. Whether the amount you sold on one platform exceeds the reporting threshold does not impact your taxable income.

What Should You Do If You Receive a 1099-K?

Check the accuracy of the form and prepare your taxes as usual. The amount shown on 1099-K is simply the total amount you were paid from that payer. It can be all from the sale of your used personal items such as clothing and jewelry. If you sold a watch that you wore at a higher price than what you paid for it, that is capital gain which you will be taxed upon. However, personal loss from such sales are not deductible. (We understand it does not sound fair.)