If you’ve ever received payments through Venmo, PayPal, Cash App, or any other payment processor, you might have received a 1099-K form. And you might be wondering, what is this? Do I need to do something with it?
Well, I’ve seen so many people just glance at these forms and ignore them because they seem foreign or confusing. But watch out! These forms tell the IRS exactly how much money you’ve received, and trust me, they are paying attention.
So today, I’ll break down what IRS form 1099-K is, who gets one, and what you should do to avoid any tax headaches.
What is a 1099-K?
A 1099-K is a tax form that reports payment transactions received through third-party processors like:
- PayPal
- Venmo
- Stripe
- Square
- Credit card companies
This form is sent at the end of the year to businesses or individuals who receive payments for goods or services through these platforms. If you’ve ever accepted money through Visa, Mastercard, American Express, or even newer platforms like Cash App and Zelle (for business use), this form might land in your mailbox.
Who Gets a 1099-K?
You might receive a 1099-K if:
- You sell online through eBay, Etsy, or Amazon and surpass the IRS reporting threshold.
- You accept business-related payments through PayPal, Venmo, or other payment apps.
- You run a side hustle—like freelancing, consulting, or selling handmade goods—and receive payments through digital platforms.
For example, let’s say you run a small baking business and accept Venmo payments for cake orders. If those transactions add up, Venmo will report that income to the IRS—whether or not you thought of it as official business income!
What You’ll Need to Watch Out For
Personal vs. Business Transactions:
- If you split rent with a roommate or pay back a friend for dinner through Venmo, that’s NOT taxable.
- But if you sell products or services and get paid via PayPal, Venmo, or Cash App, that is taxable.
Pro Tip: Always keep your business and personal transactions separate. If you mix them up, it can become a nightmare at tax time.
IRS Audits & Reporting Differences
Let’s say your 1099-K reports $100,000 in payments received, but you only report $90,000 on your tax return. Guess what? The IRS will notice!
If there’s a mismatch between what the IRS sees and what you report, you might trigger an audit.
What Can You Do About It?
1. Keep Business and Personal Finances Separate
Use a dedicated bank account for business transactions.
Link your business PayPal, Venmo, or Cash App to this account, not your personal one.
2. Track Your Business Expenses
The 1099-K reports gross income (total payments received), but as a business owner, you can deduct expenses.
Keep receipts and records of your business costs—supplies, shipping fees, transaction fees, advertising, etc.
Example: If your 1099-K says you made $50,000, but you spent $20,000 on materials, shipping, and marketing, you only need to pay taxes on the remaining $30,000—not the full amount!
3. Keep Records of Personal Transactions
If your 1099-K mistakenly includes personal payments, keep notes or screenshots to prove they weren’t business income.
If necessary, work with a tax professional to properly categorize these transactions.
Final Thoughts
If you got a 1099-K, don’t ignore it! It’s important to:
- Check the amount reported and make sure it matches your records.
- Separate business from personal transactions to avoid confusion.
Contact us with Your Questions
Track your expenses so you don’t overpay on taxes.
Have questions? Give us a call. Let me know if you want me to cover any other tax tips for freelancers and small business owners.