Every year, the United States’ IRS requires that payment settlement entities (Routable and it’s partners) provide a form called a 1099-K for each vendor that meets all of the following criteria in the previous calendar year:
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Account is based in the United States (owners do not need to be US citizens) or the non-US account is for a US taxpayer
AND -
More than $20,000 USD in total gross volume*
AND -
Has more than 200 transactions
*The IRS announced on November 21st, 2023 that 1099-K reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023 and prior years.
What is a 1099-K form?
The 1099-K is a tax information form generally used to report payments transactions. When using a 1099-K for information reporting, a copy must be delivered to the payment recipient and filed with the IRS.
Who files a 1099-K form?
A Payment Settlement Entity (PSE) is an organization that facilitates payments between parties for payment cards or third party payment networks. There are two types of PSEs:
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Merchant Acquiring Entity (MAE) a merchant acquiring entity is a bank or other organization that has the contractual obligation to make a payment to a merchant in settlement of a payment card transaction.
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Third-Party Settlement Organization (TPSO) an organization that has the contractual obligation to make payments of third party network transactions, often handling payments between someone providing goods/services and the purchaser.
Who receives a 1099-K?
Recipients of a 1099-K are mostly merchants who have received payment using a TPSO or third-party payment network.
Platforms are required to send 1099-Ks to merchants when the gross amount of total reportable payments exceeded $20,000 and the total number of such transactions exceeded 200 in a calendar year.
Deadlines and extensions
The deadline to report 1099-K 2022 tax forms to the IRS through Routable is January 16, 2023. This will ensure the forms are filed with the IRS and a copy is sent to the recipients before the IRS deadline of January 31, 2023.
Companies that need more time to file 1099-Ks to the IRS can submit the IRS Form 8809 to apply for an extension. If more time is needed to deliver the 1099-Ks to the recipients, a letter to the IRS is required to explain the reasons for delay. Extensions must be requested before the original due dates.
Read more about extensions here.
State filing considerations for 1099-K
Keep in mind that states may also have requirements and separate deadlines for reporting 1099-Ks and filing them. We recommend consulting a tax advisor to determine your state filing requirements.
Mailing vs. e-filing with the IRS
Anyone issuing more than 250 1099 forms is required to e-file with the IRS. Even if fewer than 250 forms are being filed, it is acceptable to e-file.
Penalties
IRS penalties ranging from $50 to $280 per form may apply for each instance where you:
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Don’t file an information return with the IRS by the deadline
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Don’t provide the recipient a statement by the deadline
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Don’t report a Taxpayer ID (TIN)
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Report an incorrect TIN
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Report incorrect information
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Don’t provide the recipient with all required information
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Don’t e-file with the IRS when required to e-file
Larger penalties may be enforced where there is evidence of intentional disregard or neglect.
What is the benefit to my vendor?
The 1099-K is a purely informational form that summarizes the sales activity of their account and is designed to assist them in reporting their taxes. It is provided to you and the IRS, as well as some US states.
For more help understanding the 1099-K, go to IRS.gov. You can also download a blank example of the 1099-K form here.
This article is neither legal advice nor tax advice. We recommend that you speak to your tax advisor with any questions or concerns around tax reporting.
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