Payment Card & Third Party Network Transactions, aka Form 1099-K, is a necessary tax information contract that the IRS requires from specific payments made to individual people and business operators.
This document is published by Payment Settlement Entities (PSEs), like credit cards, loans, financial institutions, and other networks such as (PayPal, Venmo, Stripe, etc.,) to help the IRS record digital transaction activities in the country.
As people continue to leverage electronic payment systems instead of cash, it has now become imperative for businesses and individuals alike to file for 1099-K.
What Is Form 1099-K?
Form 1099-K was minted so that gross amounts paid to a particular business or individual in a year are properly filed.
This captures payments made using payment cards, as well as those that take advantage of third-party networks (ex: PayPal, Venmo, and even popular e-commerce sites Etsy & eBay).
This means there is an agreement between the business and the taxpayer that this is the document that will be under the control of the IRS. This will ensure both parties do not attempt to cheat on their taxes. Here’s what we normally find in Form 1099-K:
Payee Information: This encapsulates the name, address, and TIN of the payee who is an entity as well as an individual.
Payer Details: Such as the name and contact details of the Payment Settlement Entity (PSE) that issued the form.
Payment Information: The amount in the form which consists of gross total payments received, is usually presented in detail per month.
Reporting Thresholds for Form 1099-K
Recently, the IRS has specified certain thresholds for issuing the Form 1099-K, which have been updated in recent years. These thresholds assist the IRS as to when electronic payments require income reporting. For instance, the updated thresholds are:
2024: Amounts greater than $5,000, no minimum number of transactions required.
2025: The limit goes up to $2,500.
2026 onwards: Amounts greater than $600, no limit on the number of transactions. This one is far more restrictive and is going to affect a lot more businesses and people.
These lower limits mean that a lot more businesses and gig economy workers who were not able to report income or pay taxes under higher limits are sought for restrictions and reporting.
Different Business Entities Compliance Requirements
The compliance obligations concerning the Form 1099-K people are required to submit vary from one business entity to another receiving the payments. Different business entities have different regulations concerning tax filing and reporting.
Foreign-Owned Single Member LLC
Filing Requirement: In the US, a single-member LLC owned by a foreigner does not file taxes as a separate entity, so it is considered to be a ‘disregarded entity’. But, if the gross payments from the single member LLC exceed the minimum payments, eg. $5,000 in 2024, the PSE is required to file Form 1099-K with the LLC.
Tax Implications: If a person who operates or works in a US trade or business receives a Form 1099-K, the income on the form will probably be taxable. If the LLC earned income from a source within the United States, it will be necessary for the LLC to file Form 1040-NR, intended for non-resident aliens. It is crucial to talk to a tax advisor or specialist to assess the extent of possible taxation obligations in such situations.
Partnership LLC
Filing Requirement: Partnership LLCs are regarded as pass-through entities for taxation. These Partnerships are required to receive Form 1099-K if their gross payments go beyond the minimum reporting limits.
Tax Implications: In partnership LLCs, the income claimed on Form 1099-K is first reported on a K-1 schedule which is attached to 1065. Each partner claims his share of the partnership that was passed to him on his tax return.
C Corporation
Filing Requirement: For C Corporations, C Corporations as a business are normally exempted from permits for Form 1099-K for other types of payments. This is because, as C Corporations are treated as independent taxable entities, there is no need for the third-party settlement people to issue 1099 K to C Corporations.
Tax Implications: For C Corporations, even though Form 1099-K is not issued, it does not absolve them from the responsibilities of declaring income from all business activities inclusive of payments made through cards as well as paid from third-party networks. as C Corporations are responsible for filing Form 1120, they are C Corporations. C Corporations must keep proper records so that correct tax returns are filed.
Why is Form 1099-K Important?
To facilitate the proper reporting of taxes on income earned from electronic transactions, As such, the 1099-K is critical in its functions and objectives. Some of the benefits of Form 1099-K are:
Prevents Tax Evasion: Because businesses are required to report all electronic payments to the IRS, the chances of under-reporting income are minimized.
Tax Compliance: Having a form 1099-K issued to a taxpayer means that the taxpayer must report the amount indicated on the form to the revenue authorities. This ensures the tax laws are observed and the possibility of penalties or audits is eliminated.
Record Keeping: You must keep corresponding records and have amounts reported on Form 1099-K balances with your financial statements to ensure there are no inaccuracies to resolve during a tax season or an audit.
Key Takeaways
Updated Thresholds: There has been a significant upward movement in the cutoff for issuing Form 1099-K in the past few years, expanding as far down as $600 starting from 2026. This is going to affect way more people including small business owners, the gig economy, and individuals dealing with transactions online.
Unique Requirements for Different Entities: The tax compliance for Form 1099-K as to whether a foreign-owned LLC, partnership, or C corporation applies to your business structure determines the requirements. It is very important to know the tax consequences of the forms.
Accurate Record Keeping: More businesses reporting income is why more people will make an effort to maintain record accuracy: as filing taxes will become mandatory for a lot of people through Form 1099-K. This will lead to a more accurate tax return and fewer chances of reprisal.
How EasyFiling Can Help
Tax compliance can be complex, especially when it comes to understanding and managing forms like 1099-K. At EasyFiling, we provide a variety of services to help businesses and individuals stay compliant with IRS regulations:
Tax Filing Assistance: Our experts assist with the accurate reporting of income on various sources and forms like 1099-K to ensure that all IRS criteria are met.
Entity-Specific Guidance: From LLCs that are foreign-owned to C Corporations and Partnerships, we provide tailored advice for various entities and help them with the policies surrounding them.
ITIN Services for Non-Residents: If an individual or business owner does not have a Social Security Number, then they can gain assistance through our ITIN services. These services can prove to be fundamental for filing taxes in the USA.
The IRS utilizes 1099-K forms as a means of ensuring income coming from electronic transactions is reported properly. At EasyFiling, we are here to support you in understanding these forms and figuring out a reporting strategy that will comply with these regulations so you can confidently work on expanding your business.
For more information or assistance with your tax filings, visit EasyFiling today! Our team of professionals is here to support you every step of the way.
Nabin Adhikari
