Jake Miller
A Form 1099 is a tax document that banks, financial institutions, and other payers send to the IRS to report payments made to a non-employee during a tax year. Individuals and businesses receive 1099s. A Form 1099-K is used to report gross income, meaning the total amount paid before any deductions. It is important to note that personal payments and reimbursements from friends and family are not taxable and should not be included in a 1099-K. Payment card companies, payment apps, and online marketplaces are required to fill out Form 1099-K and send it to the IRS annually if the payments received for goods or services total over a certain amount, which was \$20,000 for tax years before 2023, \$5,000 for 2024, \$2,500 for 2025, and \$600 for 2026 and after.
Now, do banks issue 1099-Ks for bill payments? It depends on whether the bank meets the definition of being a third-party payment processor as defined by the IRS. While they facilitate bill payments electronically, they are not functioning as a replacement for a merchant account. According to the IRS, a Payment Settlement Entity (PSE) is required to file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. A PSE is a bank or organization that has a contractual obligation to make payments to participating payees in settlement of payment card transactions. Therefore, it appears that banks that meet the criteria of a PSE would be responsible for issuing 1099-Ks for bill payments that meet the reporting threshold.
| Characteristics | Values |
|---|---|
| Who issues 1099-K forms? | Payment settlement entities (PSEs) or third-party payment processors are responsible for issuing 1099-K forms. This includes payment card companies, payment apps, and online marketplaces. |
| When are 1099-K forms issued? | 1099-K forms are issued annually by 31 January for the previous tax year. |
| Who receives 1099-K forms? | Individuals and businesses who receive payments for goods and services through third-party payment processors may receive a 1099-K form if they exceed the reportable payments threshold. |
| What is the reportable payments threshold? | The threshold varies by year and transaction type. For 2024, it is $5,000 for third-party payment network transactions and $600 for app-based drivers. For 2025, the threshold is $2,500, and from 2026 onwards, it will be $600. |
| Are banks considered third-party payment processors? | No, banks are not considered third-party payment processors and are generally not responsible for issuing 1099-K forms for bill payments. |
| What about payments made directly by banks? | Payments made directly by bank transfer, check, or cash are typically reported on a different form, such as the 1099-NEC or 1099-MISC, and not on a 1099-K. |
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What You'll Learn
Third-party payment processors
The threshold for issuing a Form 1099-K has changed over time. For tax years 2023 and prior, third-party payment processors were required to issue a Form 1099-K when gross payments exceeded $20,000 and there were more than 200 transactions. For tax year 2024, the threshold is $5,000, and for tax year 2025, it is $2,500. Starting in 2026, the threshold will be $600. It is important to note that companies can still issue a Form 1099-K even if the total payments are less than the reporting threshold.
The definition of a third-party payment processor is not entirely clear, and some companies may not consider themselves to be third-party payment processors. For example, Zelle and Bill.com have stated that they are not third-party payment processors and will not be issuing Form 1099-K. However, if a company is considered a third-party payment processor, it is their obligation to file and send out Form 1099-K for payments made on behalf of their customers.
If a company refuses to issue a Form 1099-K, the customer may still be required to report the income on their tax return. All income, regardless of amount or whether a Form 1099-K is received, must be reported unless specifically excluded by law. Form 1099-K should not be used to report payments from friends and family as gifts or repayment for personal expenses, as these are not considered taxable income.
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Payment methods
Payment card companies, payment apps, and online marketplaces are required to issue Form 1099-K for certain types of payments. If a customer pays directly by credit, debit, or gift card, the payment processor or payment settlement entity will provide a 1099-K. This includes banks that have a contractual obligation to make payments in settlement of payment card transactions. Therefore, if a bank facilitates payment card transactions, it may issue a 1099-K for bill payments made through these methods.
However, it is important to note that not all payment methods trigger a 1099-K. Check/ACH/Direct Deposit payments, for example, are not included in a 1099-K. These types of payments would instead fall under a different category, such as 1099-NEC or 1099-MISC. Additionally, personal payments and reimbursements from friends and family are non-taxable and should not be included on a 1099-K.
In the case of third-party payment processors, there is some ambiguity. While they may facilitate bill payments, they are not always considered replacement merchant accounts. As a result, they may not be responsible for issuing 1099-Ks. For example, Bill.com, Zelle, and similar services have stated that they are not third-party processors and will not be issuing 1099-Ks.
Ultimately, the payment method used determines whether a 1099-K is issued. If a bank is involved as a payment processor for payment card transactions, it may issue a 1099-K for bill payments made through those specific methods. However, for other payment methods, different reporting requirements and thresholds may apply, as outlined by the IRS.
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Taxable income
Form 1099-K is used to report payments received during the year from credit, debit, or stored value cards (such as gift cards), payment apps, or online marketplaces for goods or services. It is an information return that payment apps and online marketplaces are required to fill out and send to the IRS each year. Individuals and businesses receive 1099s.
Form 1099-K is not issued for personal payments or reimbursements from friends and family, as these are not taxable. It is also not issued for cash back amounts, which are not considered taxable income. However, if someone accidentally sends you a personal payment under the "goods and services" category, the platform may include it in your 1099-K, in which case you should contact the payment platform to request a correction.
The 1099-K form includes the gross payment amount, which is the total value of payments received through payment card and third-party network transactions. This amount does not include adjustments for fees, credits, refunds, shipping, cash equivalents, or discounts, which can be deducted from the gross amount when including income on your tax return. It is important to note that just because a payment is reported on Form 1099-K does not mean it is taxable.
If you receive a Form 1099-K, you can use it with your other tax records to determine your correct tax owed and report your taxable income when you file your tax return. All income, regardless of the amount, is taxable unless the tax law states otherwise. This includes income from other sources such as cash, property, goods, or digital assets, even if they are not reported on forms.
Therefore, Form 1099-K is used to report taxable income from payment card and third-party network transactions, but it is not the only source of information for determining taxable income. Individuals and businesses must report all income, including amounts from other sources, on their tax returns and can deduct certain expenses to calculate their taxable income.
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Payment thresholds
Payment card companies, payment apps, and online marketplaces are required to fill out Form 1099-K and send it to the IRS each year. They must also send a copy to the taxpayer by January 31. Form 1099-K is used to report payments from payment apps or online marketplaces and from credit, debit, or stored-value cards. It is used to help figure out and report the correct taxable income on a tax return.
Third-party settlement organizations (TPSOs) are required to report payments on Form 1099-K when the total amount of payments received for goods or services through the platform exceeds a certain threshold. For tax year 2024, the threshold is $5,000, while for 2025, it is $2,500. For 2026 and subsequent years, the threshold will be $600. For tax years before 2023, TPSOs were required to report transactions when gross payments exceeded $20,000, with more than 200 transactions.
It is important to note that the reporting threshold does not affect the tax law requiring individuals to report all income on their tax returns, regardless of whether a Form 1099-K is received or not. All income is taxable unless excluded by law, even if it is below the reporting threshold. However, payments received from family and friends as gifts or reimbursements for personal expenses are not considered taxable income and should not be reported on Form 1099-K.
Additionally, the payment method may impact the reporting requirements. For example, a 1099-K is typically issued for "payment card" transactions, while Check/ACH/Direct Deposit payments may trigger a different form, such as a 1099-NEC or 1099-MISC.
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Payment settlement entities
- Merchant Acquiring Entities: These are banks or other organisations that process credit card transactions on behalf of merchants. They transfer funds from the customer's bank (the issuing bank) to the merchant's account and report the merchants' reportable payment card transactions.
- Third-Party Settlement Organisations: These are central organisations with a contractual obligation to make payments to participating payees (usually merchants) in a third-party payment network. Examples include payment apps and online marketplaces.
PSEs must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. This form is used to report the gross transaction amounts of reportable transactions for the calendar year and its corresponding months. For third-party network transactions, reporting is required if a payee's reportable transactions exceed a certain threshold, which has changed over the years. For example, for tax year 2024, the threshold is $5,000, while for 2025, it is $2,500, and for 2026 and subsequent years, it is $600.
It is important to note that Form 1099-K is only issued for "payment card" transactions, and certain payment methods, such as check/ACH/direct deposit, are not included. Additionally, money received from friends and family as gifts or reimbursements for personal expenses should not be reported on Form 1099-K as they are not considered taxable income.
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Frequently asked questions
Banks are not responsible for issuing 1099-Ks for bill payments. Payment card companies, payment apps, and online marketplaces are required to fill out Form 1099-K and send it to both the IRS and the individual or business by January 31.
A 1099-K is a tax document that reports gross income from payment card transactions and third-party network transactions. It is used to help figure out and report taxable income when filing a tax return.
Payment settlement entities (PSEs) are responsible for issuing 1099-Ks. This includes merchant acquiring entities such as banks and other organizations that have contractual obligations to make payments to participating payees.
