Accept payment via apps or sell online? A new tax form may be in your future
Changes to tax laws can cause stress and anxiety —whether you’ve been a business owner for years or you’re new on the block. If you receive payments or sell via online platforms like Etsy, eBay, or Venmo, a recent change may mean a new tax form is in your future.
Starting with 2022 business taxes, if your company received payments of $600 or more through one or more of these kinds of platforms, you will receive a tax form (called Form 1099-K) in January 2023.
Last reviewed November 1, 2023
Alert: The IRS has announced a delay to the 1099-K rule changes as outlined on this page. For tax year 2022, the rules will generally apply as they did for tax year 2021. Please check back for updates on the impacts of the delay.
Get help today and at tax time from the tax experts
Want to discuss how these recent tax changes may impact your small business? Block Advisors is here for you. Make an appointment today with a Certified Small Business Tax Pro who can help you navigate and prepare for next tax season.
To learn more about 1099-K changes, read on!
Selling online and taxes: What you should know
What’s changed – The new laws lower the previous threshold to receive the tax form significantly from $20,000 and 200 transactions to just $600 and a single transaction. *
Who is affected – Any business receiving more than $600 of income from PayPal, Ebay, Venmo, Square, Facebook Pay, or any other third-party apps or online sites (also known as TPSOs – Third-Party Settlement Organizations).
What you can do now – If you accept both personal and business payments on the same account, your bookkeeping may be more complicated at tax time. Consider getting separate accounts to reduce the confusion.
The impact – Although these changes could result in more paperwork for your business, they do not necessarily increase how much your company owes at tax time. Simply put, Form 1099-K is one more tool to help ensure your tax return is accurate.
*The new Form 1099-K thresholds are part of changes from the American Rescue Plan Act passed March 2021.
Digital Business Payment and Seller FAQs
I’ve never heard of a 1099-K. What is that form?
Form 1099-K is an IRS form that shows money received from certain third-party sites, such as payment apps, digital marketplaces, or other credit or debit card processing sites. If your business earnings meet the threshold, the apps or sites you use will issue the 1099-K by January 31. If you have received an Ebay 1099K, Venmo 1099K, Paypal 1099K, or other TPSO 1099K, this may be why.
If you are an individual and not a business, check out H&R Block’s related article on receiving money via apps or selling items online!
The platform I used asked me to fill out a W-9. Why is that?
The W-9 form is used to get an official record of your tax ID number or Employer Identification Number (EIN). If the app or online site you use is required to send you a 1099-K, they need to have documentation of your tax ID/EIN on Form W-9. This is generally the case for all TPSOs, whether it is Paypal, Ebay, Venmo, Square, or another similar site.
Do I have to pay tax on the amount that will be reported on the 1099-K? What if I’m already expecting a 1099-NEC for the same business income – do I need to report both?
If you accept payment for your business’s goods and services through third-party apps and online services (such as Square, Paypal, Venmo, Ebay, etc.) you may receive a 1099-K as well as a 1099-NEC. However, you don’t have to report the same business income twice.
You should report all business income on your tax return. Regardless of whether it is listed on a 1099-K, a 1099-NEC, both, or not reported on any information document. The IRS requires you to file a tax return if you have $400 or more in net self-employment earnings.
NOTE: You won’t owe taxes for money transferred for personal use and reported on a 1099-K, but you may have to file some paperwork.
How can I get ready for my business tax filing next year? What do I need to do now?
When preparing for tax season, you will want to keep thorough records of the sales transactions you’ve made during the year. Consider working with a bookkeeper to put you on the path to success. Also, it will make your life much easier if you keep your personal and business payments on separate accounts!
Should I start a Sole Proprietorship or LLC? Will that impact my taxes?
If you are operating as a business on your own and haven’t formed a business entity such as an LLC or corporation, the IRS considers you a sole proprietorship by default. If you are working with one or more other individuals, you may be considered a partnership.
You can make the decision about whether this is the best classification for your situation or whether you should consider forming another type of entity, such as an LLC. Make sure you understand the tax impacts of forming a business entity. Consider consulting an attorney for any legal business entity questions.
Learn more about LLC vs. Sole Proprietorship.
Does the gross amount shown on a 1099-K need to match the total amount in Schedule C when filing my taxes?
For business sales on eBay, Etsy, Venmo, Square and any other similar third-party settlement organization, you report the amount on Form 1099-K as revenue on your business return.
For example, if you are a sole proprietor, you will:
- Report the total amount from boxes 1a and 1b of every 1099-K you receive on line 1 of Schedule C within Form 1040.
- Deduct any expenses you had from selling on the appropriate line of Schedule C.
If your business expenses are more than your business income you may be able to deduct the operating loss.
Should I get a separate bank account or credit card for my business?
Yes, you should consider getting a separate bank account and/or credit card to help keep business/sales transactions separate from your personal ones. This will make things easier come tax time since the business/sales transactions and related expenses will need to be tracked and reported separately.
I’m a new business owner – how will these changes impact my taxes?
When you start a business, you’ll have a few new considerations for your taxes. This includes paying estimated taxes and filing Schedule C.
Sound daunting? Don’t fret! Block Advisors, a part of H&R Block, has the expertise to cover all your small business tax needs.
Learn more about Block Advisors’ small business tax services.