Form 1099-K, payment apps and your side income

If you get paid through PayPal, Venmo business profiles, Stripe, Square, Etsy, eBay or Amazon, you may receive a Form 1099-K early each year. The form causes a lot of confusion, mostly because the number on it rarely matches the income you actually report.

What a 1099-K is

Form 1099-K is filed by payment settlement entities — card processors and third-party networks such as payment apps and marketplaces — to report the gross amount of payments they processed for you during the year. A copy goes to you and to the IRS.

The key word is gross. The total includes processing fees, shipping you collected, sales tax in some cases, and payments that were later refunded. It isn't your profit, and it isn't necessarily even your revenue.

The threshold, after years of back-and-forth

For years, payment apps and marketplaces only had to issue a 1099-K when a user received more than $20,000 across more than 200 transactions. A 2021 law would have dropped that to $600, and the IRS phased the change in gradually. The 2025 tax law then reversed course and restored the more than $20,000 and more than 200 transactions threshold for third-party networks.

Two important footnotes:

• Card processors are different. Payments you accept by credit or debit card through a merchant processor are reportable regardless of amount.
• States can set their own rules. Several states require 1099-Ks at much lower amounts, so you may receive one even if you're under the federal threshold.

What's taxable — and what isn't

The form doesn't create or remove tax. What matters is what the payments were for.

• Payments for goods or services you sell are business income, whether or not you receive a 1099-K.
• Reimbursements from friends and family — splitting rent, dinner or a vacation — aren't income.
• Gifts aren't income to the person receiving them.
• Selling personal items for less than you paid generally isn't taxable, and the loss isn't deductible. Selling them at a gain is taxable.

The practical problem is that a payment app can't tell which is which. If your personal transfers run through the same account as your business payments, they may all end up on the same form.

When the 1099-K doesn't match your books

Because the IRS matches forms to returns, you want your return to explain any difference rather than simply report a smaller number. On a Schedule C, the usual approach is:

1. Report the gross receipts shown on the 1099-K.
2. Subtract refunds and returns separately.
3. Deduct processing fees, shipping and cost of goods sold as expenses.
4. If personal or non-taxable amounts were included, report them and back them out in a way that makes the adjustment visible, with records to support it.

If the form is simply wrong — the wrong person, the wrong year, a duplicate — contact the issuer and ask for a corrected form. Keep a copy of your request.

Set your apps up the right way

• Use a business profile for business payments and a personal profile for personal ones. Many apps offer both.
• Tag payments correctly. Paying a friend back as "goods and services" can make a personal transfer look like a sale.
• Connect the app to your bookkeeping so each deposit is matched to an invoice or sale, and fees are recorded as they happen.
• Download annual statements in January, even if you don't receive a 1099-K. They're your support if anything is questioned.

Reconciling every 1099-K to the books before filing is a standard step in our Filing Desk review. It's also one of the easiest ways to avoid a CP2000 notice later — see what IRS notices mean.