Form 1099-K FAQs: Third party filers of Form 1099-K

A1. Yes. Forms 1099-K can be filed electrically through the Information Returns Intake System (IRIS) or the Filing Information Returns Electronically (FIRE) system. Any person that is required to file 10 or more Information Returns (including Forms 1099-K and many other types of Information Returns) during the calendar year must file those information returns, including the Forms 1099-K, electronically. The IRS encourages filers who are required to file fewer than 10 Information Returns to file electronically as well.

For more information, review Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G PDF and the General Instructions for Certain Information Returns.

A2. Entities required to file information returns like Form 1099-K, Payment Card and Third Party Network Transactions, must also furnish a statement to the payee (taxpayer) with the same information reported to the IRS. Payee statements may be furnished in paper format (i.e., Copy B of Form 1099-K) or electronically with the consent of the taxpayer in accordance with Treas. Reg. 1.6050W-2.  This consent can be made electronically in any manner that reasonably demonstrates that the payee can access the statement in electronic format.  Alternatively, consent may be made in a paper document if it is confirmed electronically.  See Treas. Reg. 1.6050W-2, Electronic furnishing of information statements for payments made in settlement of payment card and third party network transactions, for instructions for obtaining consent from taxpayers.

The payee statements must be furnished to the taxpayer by Jan. 31, of the year following the transactions.

A3. If filed on paper, Form 1099-K information is required to be filed with the IRS by Feb. 28 of the year following the transactions. If filed electronically, Form 1099-K is required to be filed by March 31 of the year following the transactions.

A4. The merchant acquiring entity that transfers funds to the participating payee (taxpayer) is responsible for reporting the gross amount of reportable payment card transactions.

A merchant acquiring entity can outsource the processing of the transactions to a processor that may share the contractual obligation to pay the participating payee. When both a payment settlement entity (such as a merchant acquiring entity) and a processor have a contractual obligation to pay the participating payee, the entity that submits the instructions to transfer funds to the participating payee’s account is responsible for preparing and furnishing a payee statement to the participating payee and for filing Form 1099-K, Payment Card and Third Party Network Transactions, with the IRS.

A5. The TPSO (such as a popular payment app or online marketplace) that transfers funds to the participating payee (taxpayer)is responsible for reporting the gross amount of reportable third party network transactions.

A6. Yes. There is a de minimis exception from reporting for TPSOs with respect to third party network transactions. TPSOs will not be subject to penalties under section 6721 or section 6722 for failing to file or failing to furnish Forms 1099-K unless the gross amount of payments to a payee are over $20,000 and the number of transactions to that payee exceed 200. As an exception to the general rule, however, those TPSOs that have performed backup withholding under section 3406(a) for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K with the IRS and furnish a copy to the payee if total reportable payments to the payee exceeded $600 for the calendar year. 

A7. No. There is not a de minimis exception for reporting payment card transactions. All payment card transactions must be reported on Form 1099-K.

A8. It depends. Sales paid for with stored-value cards or gift cards are:

• Reportable if the card is accepted by a network of persons unrelated to the issuer and each other.
• Not reportable when the card is only accepted as payment by the issuer or someone who is related to the issuer of the card (e.g., a subsidiary company or the company itself). Under these circumstances, the stored-value cards do not fit the definition of a payment card and sales made with such cards are therefore not reportable payment card transactions.

For the definition of unrelated persons see Internal Revenue Code (IRC) 267(b), Relationships, of the Internal Revenue Code, and IRC 267(e)(3), Constructive Ownership in the Case of Partnerships, or IRC 707(b)(1), Certain Sales or Exchanges of Property with Respect to Controlled Partnerships, Losses Disallowed.

A9. Yes. However, the entity responsible for filing (i.e., the entity that submits the instructions to transfer funds) is liable for any applicable penalties under IRC 6721, Failure To File Correct Information Returns, and IRC 6722, Failure To Furnish Correct Payee Statements, if the reporting requirements are not met. In addition, the name, address and Taxpayer Identification Number of the entity responsible for filing must be reported on Form 1099-K, Payment Card and Third Party Network Transactions, in the box for the filer's information.

A10. Verification of payee TINs is done through the Taxpayer Identification Number (TIN) Matching Program. For further information please visit General Instructions for Certain Information Returns - Introductory Material.

A11. No, these transactions should not be reported twice. If a transaction is reportable by a PSE under both IRC 6041, Information At Source, or IRC 6041A(a), Returns Regarding Payments Of Remuneration For Services And Direct Sales, and under IRC 6050W, Returns Relating To Payments Made In Settlement Of Payment Card And Third Party Network Transactions, the transaction should only be reported on Form 1099-K, Payment Card and Third Party Network Transactions. The transaction should not be reported on Form 1099-MISC, Miscellaneous Information PDF or Form 1099-NEC, Nonemployee Compensation PDF. See the Instructions for Form 1099-K and the separate Instructions for the Forms 1099-MISC and 1099-NEC.

A12. No. The Internal Revenue Code (IRC) requires payment settlement entities (including electronic payment facilitators) to file information returns and to furnish payee statements with respect to each participating payee to whom payments in settlement of reportable payment transactions are made. Moreover, if a payment settlement entity fails to comply with these statutory obligations, it is subject to penalties under IRC 6721, Failure To File Correct Information Returns, and IRC 6722, Failure To Furnish Correct Payee Statements. Because federal law requires payment settlement entities to file information returns and to furnish payee statements, such entities are precluded from collecting fees for costs incurred in fulfilling these requirements.

A13. An MCC is a four-digit number used by the payment card industry to classify businesses by the goods or services they provide. There are approximately 600 MCCs, representing different types of businesses. Some examples are: 4411 - Cruise Lines; 5462 - Bakeries; and 5532 - Automotive Tire Stores.

A14. If a payee has receipts classified under more than one MCC, the merchant acquiring entity may either:

• File separate Form 1099-K, Payment Card and Third Party Network Transactions, reporting the gross reportable transaction amounts attributable to each MCC, or
• File a single Form 1099-K reporting gross reportable transaction amounts and the MCC that corresponds to the largest portion of total gross receipts.

Additionally, if a merchant acquiring entity (or its processor) employs an industry classification system other than or in addition to MCCs, the merchant acquiring entity should assign to each payee an MCC that most closely corresponds to the description of the payee's business.

A15. No. TPSOs do not use MCCs to classify payees. Therefore, they do not need to complete Box 2 of Form 1099-K, Payment Card and Third Party Network Transactions.

A16. Yes. The term participating payee (taxpayer) includes any governmental unit (an any agency or instrumentality thereof).

A17. Yes. A payment settlement entity may be a domestic or foreign entity.

A18. For questions about Form 1099-K, Payment Card and Third Party Network Transactions, see the general instructions for information returns.

A19. The most common example of this situation is when a franchisor processes all the payment card transactions of multiple franchisees and distributes payments accordingly. For example, when a corporation receives payments from a bank on behalf of multiple payees, the corporation is treated as a participating payee with respect to the bank and as a payment settlement entity with respect to the payees to whom the corporation distributes the payments. The bank is required to report the gross amount of reportable transactions settled through the corporation. In turn, the corporation is required to report the allocable transactions of the payees to whom the corporation distributes the payments. Under the statute and regulations, the corporation is an “aggregated payee.”  See Treas. Reg. 1.6050W-1(d) regarding aggregated payees.