Lands on Schedule C, Part I — Gross receipts, when the app paid you for goods or services
If you are paid only through your own card reader, or your business files as a partnership or a corporation, this article is not for you. A card processor works to a different rule, with no threshold at all, covered in your card processor has no 1099-K threshold. A partnership or corporation reports the form on its own return. Nor does this cover crowdfunding, where some of the money can be a gift and some of it income, or bank transfers through Zelle, which sends no 1099-K at all.
It is for anyone whose payment app carries two kinds of money through one account: the share of a dinner bill, the birthday transfer, the roommate's half of the rent, and alongside them the payments for a cake order, a weekend of design work or a sofa sold to a stranger.
The short answer
| Money through the app | Taxable? | On a 1099-K? |
|---|---|---|
| Payment for goods or services you sold | Yes | Required over $20,000 in more than 200 payments on that app; can come below it |
| Gifts, and friends or family repaying a shared cost | No | Should not be |
| Your own things sold for less than you paid | No tax, and no deduction | Can be |
| Your own things sold for more than you paid | The gain is | Can be |
What the app is reporting
A payment app or online marketplace is, in the IRS's term, a third party settlement organization: "the central organization that has the contractual obligation to make payments to participating payees", and the IRS's own example is "apps used to handle the money transfer between buyers and sellers." Form 1099-K is its report of what passed through it for goods and services.
The rule for when it must send one:
"A payment app or online marketplace is required to send you a Form 1099-K if the payments you received for goods or services total over $20,000 in more than 200 transactions. However, they may send you a Form 1099-K with lower amounts and/or transactions."
Three things follow. The count is per app, so $15,000 through one and $15,000 through another produce no form from either, and the $30,000 is still income. An app may send a form below the line anyway, and the IRS adds that "your state may have a lower reporting threshold." And an app that carried out backup withholding on your payments during the year must file a 1099-K whatever the amount.
Personal money is not income
The IRS is plain about it:
"Money you received from friends and family as a gift or repayment for a personal expense should not be reported on a Form 1099-K. These payments aren't taxable income."
Its examples are the ones every app carries: sharing the cost of a car ride or a meal, money for a birthday or holiday gift, a roommate paying back rent or a household bill. A friend who reimburses you for a concert ticket through an app has not paid you income, and you should not get a form for it.
The difficulty is that the app cannot see intent. The IRS says each app "has its own processes to determine the nature of payments, and you should review the policies of any apps or online marketplaces you use." Its advice is to "note these types of payments as non-business in the payment apps when possible", and, where an account carries both kinds of money, to keep business and personal transactions apart so that the tax owed is easier to work out. A separate account for the paid work does more for next January than any amount of reconstruction after it.
Business money is income, form or no form
The other half of the rule runs the opposite way. "Whether or not you receive a Form 1099-K, you must still report any income on your tax return." A form is a report the app files, not the thing that makes income taxable, and the IRS's FAQ says it both ways: a payment on a 1099-K is not necessarily taxable, and a payment missing from one is not necessarily tax-free.
For a freelancer, gig worker or seller working on their own account, the IRS sends the amounts to Schedule C. The figure on the form is gross. It is not reduced for fees, credits, refunds, shipping, cash equivalents or discounts, which the IRS says "are not taxable income. You can deduct them from the gross amount." Report the gross as receipts and take the rest off where it belongs; the Form 1099-K page explains the boxes, including the monthly ones that make the reconciliation possible.
Selling your own things
A payment app is also where the old bicycle and the spare tickets get sold, and those can reach a 1099-K too. What matters is the price against what you paid.
- Sold for less than you paid: a loss. "A loss on the sale of a personal item can't be deducted from your taxes. But you can zero out the reported gross income so you don't pay taxes on it", in the entry space at the top of Schedule 1, or on Form 8949.
- Sold for more than you paid: a gain, and taxable, on Form 8949 and Schedule D.
The two are reported separately, even from one sale. The IRS's example is two sets of tickets bought for $250 each and sold together for $1,000, one set at $800 and the other at $200. The $550 gain on the first goes on Form 8949 and Schedule D as a short-term gain; for the second, the $200 goes in the entry space at the top of Schedule 1. The $50 loss cannot reduce the $550 gain.
If you cannot remember what you paid, the IRS suggests asking the bank or card company you bought it with for old statements, or the seller for its record of the sale.
When the form is wrong
A 1099-K can arrive when it should not: for gifts or reimbursements, for an account that is not yours, or as a duplicate of one you already have. The IRS's steps:
- Contact the company named at the top left of the form, the filer. If you do not recognize it, contact the payment settlement entity named at the bottom left, above your account number.
- Ask for a corrected Form 1099-K that shows a zero amount, and keep the original and every message about it.
- Do not ask the IRS to fix it. "We can't correct your Form 1099-K."
- Do not wait to file. Without a corrected form, report the amount from the incorrect one in the entry space at the top of Schedule 1, which zeroes it out. With several such forms, the combined amount goes in that one space.
The IRS's example is a roommate who sent $11,000 over the year for their share of the rent. It came through an app and landed on a 1099-K, but a reimbursement is not income, and the return should show nothing for it.
The habit that saves the January
Most of this is decided by the notes you leave in the app long before any form is drawn up. Mark personal payments as personal when the app lets you. Keep paid work in its own account, or at least its own record, with the fees and refunds beside the gross. Write down what you paid for anything you might sell. Then a 1099-K, whether it arrives or not, is a figure to check against records you already have, and a 1099-K next to a 1099-NEC is a pair to reconcile rather than two totals to add.
Common questions
Do Venmo and PayPal report personal payments to the IRS?
I was paid less than $20,000 through the app. Can I still get a 1099-K?
No 1099-K came. Do I still report the money I earned through the app?
My 1099-K includes rent my roommate paid me back. What do I do?
Is the $20,000 counted across all my apps together?
I sold my old things through an app. Is that taxable?
This article is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional about your situation.