If you’re like most U.S. sellers doing a significant volume of sales, you’ve begun receiving Form 1099-K from payment processors. But should you be concerned if the amounts being reported to the IRS on Form 1099-K is different from your records?
Services are required to report to the IRS the amount of payments they’ve processed on your behalf. That includes credit card merchant account processors, payment services like PayPal and Square, and certain marketplaces like Amazon.
A longtime seller and former accountant said she received Form 1099-K from Amazon.com this week and was shocked to see the marketplace had overstated her sales on her 1099-K this year by a very large margin, “I am writing to ask if you have ever heard of an error in a 1099-K and if so is there anything that can be done to correct it,” she said. “Amazon is always right, in most cases but these figures are not correct. I went back and rechecked all of my figures and this is a huge mistake.”
We’ve previously written about some of the reasons these numbers might not match:
- Payment processors report gross transaction volume, not net – so refunds, shipping costs, sales taxes or other adjustments that would be deducted on a seller’s tax return will still be reported to the IRS on the 1099-K forms.
- Payment providers will report transactions based on the date they were processed, while some sellers keep records organized by the date they received the funds.
Small-business and tax guru Barbara Weltman of BarbaraWeltman.com said she hadn’t heard of any such reports, but said it was easy for there to be some discrepancies. The good news, she said, is that sellers don’t have to reconcile their income on their tax returns with amounts reported on 1099-K. The bad news: If there IRS thinks there may be problems, it can issue a letter asking the seller for an explanation.
She recommended sellers visit this IRS website to learn more.
Steven Aldrich, Senior VP of Business Applications for GoDaddy, said he hadn’t been hearing of any more questions related to 1099-Ks this year compared to last year. “We often see differences between a 1099-K total and what a customer expected because the 1099-K doesn’t report any deductions or business expenses you might have taken,” he said. “It doesn’t take into consideration things like shipping income collected that a seller spent on shipping, refunds, charge backs or other deductions that actually make income lower than what was reported on the 1099-K.” He recommended sellers visit this post from last year on the Outright.com blog for a primer on what is in and out of a Form 1099-K.
We’ve also seen a lot of confusion about what sales volume triggers a Form 1099-K. Payment processors must file 1099-Ks for sellers for whom they process more than $20,000 and more than 200 payments. That means if a company processes one transaction on behalf of a seller for the year for $21,000, they will not be required to file Form 1099-K for that seller because both criteria must be met. (However, some companies have collected sellers’ social security numbers well before those sellers near that threshold.)
Mark Faggiano of TaxJar.com said if there is a major discrepancy, the merchant should first contact the company that provided the 1099-K (in this case, Amazon directly). “There is also a field on the actual 1099-K form that should include a phone number that the merchant can call,” he said.