3 Things Your Home Business Should Know about the PayPal 1099-K

Are you getting a PayPal 1099-K? You just might be. Get ready for a little extra paperwork.

I hope you keep detailed records as a home business owner because if you are issued a PayPal 1099-K, you’ll need them.

It’s true that you should have good records regardless, but the 1099-K is likely to cause headaches you didn’t expect.


What is the 1099-K?

For the most part, people are associating the 1099-K with PayPal. However, other third-party payment processors, including the banks that process debit and credit transactions for your home business, might need to issue you a 1099-K. As a third-party payment processor, PayPal is subject to issuing the 1099-K.

The 1099-K is meant to ensure that those that do business online report their income. Third-party payment processors are required to issue this form when you have at least $20,000 in transactions and 200 transactions. For the most part, if you don’t meet both of those conditions, you probably won’t see the 1099-K. In fact, here’s what PayPal says about it:

Understand, though, that there are some states where the threshold for reporting is lower. If you live in affected states, even if you don’t reach both thresholds, you could find yourself with a 1099-K.

Who Gets the 1099-K?

The issuer sends a copy to the IRS, and a copy to you, for your records. Just like the 1099-MISC, the IRS gets a copy and you get a copy. So it’s not exactly a PayPal 1099-K, but it is a form that many people are going to receive as a result of carrying on business through PayPal. I will be receiving one, just as I received a 1099-K last year.

Originally, businesses were going to be required to submit a reconciliation if their income didn’t match the amount shown on the 1099-K. However, recognizing the burden that would place on many small and home business owners, that requirement has been done away with. But that doesn’t mean that you’re in the clear.

PayPal does provide a handy reconciliation file you can use to help figure things out. Whether you use PayPal’s reconciliation or not, though, it’s a good idea to have really good records. I’m always ready to cross-reference my 1099-K information with my records.

Just in case.

3 Things You Should Know about the 1099-K

It’s never fun to prepare your taxes — even when you use an accountant as I do. However, it’s important to be on top of things. So, as you prepare your home business taxes for the year, here are three things you should know:

1. Some of your income might be double-reported

There is a possibility that your income might be double-reported. This is an issue for me. At the same time, PayPal is sending out a 1099-K to the government, reporting the payments I received, some of my clients — many of whom pay through PayPal or other third-party payment processors — are sending 1099-MISC forms to the IRS.

So some of my income is reported twice, and it looks like I made more than I did. As a result, I am keeping careful track of which income is double-reported.

One of my clients paid me $24,000 over the course of last year. That all came through PayPal. So, of course, now it looks like I made an extra $24,000. I like to notate which clients’ 1099-MISCs are also included on PayPal 1099-K. You can include it in your reconciliation as well.

The problem is that my PayPal 1099-K shows that I received $109,000 through PayPal. However, about $47,000 of that is duplicated in 1099s sent to me by clients. That’s put-you-in-the-next-tax-bracket money.

Additionally, with other third-party payment processors, the double-reporting is an even bigger issue. Everyone is used to issuing 1099-MISC forms, but they may not need to do it after all.

2. Your chargebacks and fees won’t be reported

The 1099-K only reports your income from the third-party transactions. So, if there is a chargeback on a credit card transaction, or if you have had fees deducted from your PayPal income, that doesn’t show up on your 1099-K.

You need to have records documenting these costs so that if you are audited, you have the proof you need to back up your claim that you paid all of what you owe. I usually take a record of my PayPal statements that show the fees and chargebacks with my own tax records for the year. You don’t have to send them in with your tax return, but it helps to have them handy in the event you’re audited.

And, if you live in one of the states with a lower threshold and use PayPal to sell items, if you meet that threshold, you might still get a 1099-K — even if you didn’t make $20,000 and have those 200 transactions. That’s no fun because it looks like business income, even though you are selling at a loss. You’ll have to work with your accountant to take care of the discrepancy.

3. You should be prepared to reconcile your income with the 1099-K

Even though the requirement to submit a reconciliation to your 1099-K with your tax return has been waived, you should still be prepared.

If there is a big enough discrepancy, you might be flagged for a tax audit. If this is the case, you will want all of the records available to you, showing allowances, expenses, and fees, as well as copies of the 1099-MISC forms you have that overlap with what’s reported on the 1099-K form.

I go ahead and note which 1099-MISC forms are duplicated on a 1099-K. I’ve also used the handy form provided by PayPal to reconcile those numbers. However, as more of my clients shift to other payment processors, I’m using my own reconciliation process more.

Not All Your Clients Will Issue 1099s

Some of my clients aren’t issuing 1099-MISC forms to me, due to the fact that they assume the PayPal 1099-K will take care of it. (Thank goodness! That’s something I wish all my clients knew about the PayPal 1099-K.)

According to the instructions for the 1099-MISC, you are supposed to leave out payments handled by third-parties.

Additionally, Intuit, in its QuickBooks Support, indicates that businesses don’t have to include payments made through PayPal or with a credit card, on 1099-MISC reports. (Hat tips for links from Jim at Wallet Hacks and Glen at Free From Broke.)

However, there has been a lot of confusion on this point, so, as a contractor, you still might end up with double-reported income if your clients don’t realize the change.

And, if you’re issuing 1099s, pay attention to the situation. Even though this has been a Thing for several years now, many clients, accountants and others are still stuck in old habits. You might not actually have to send them out. That’s not a bad thing. Less paperwork for you! And your contractors will thank you for not creating more headaches for them.

Before you make changes to issuing a 1099-MISC, though, check with your home business accountant or a trusted tax professional.

Find more information about the 1099-K at the IRS website.

69 thoughts on “3 Things Your Home Business Should Know about the PayPal 1099-K”

  1. Great post Miranda. Thank you for explaining this so clearly.
    I’m a CPA and I didn’t realize that Paypal was sending the 1099-Ks to the recipient. Does the payor get a copy too?
    Most people I pay do not cross the 1099-K thresholds, so seems like they should still get a 1099MISC from me.

    1. To back up Christina’s comment, the following is an exert from the 2015 1099-Misc instructions.

      “Form 1099-K. Payments made with a credit card or
      payment card and certain other types of payments, including third party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC.
      See the separate Instructions for Form 1099-K.”

      So if your handling the accounting for a business that uses some individual contractors that are not incorporated, you show try to minimize paying them by check,and instead pay them with a credit card or use a 3rd party processor like Paypal. That would cut down on the number of 1099s you would have to process at the end of the year. Nobody likes to process 1099s; it’s just another administrative annoyance that you have to deal with. Some contractors may balk at using Paypal. Just tell them too bad. Offer to pay whatever transaction fees the payment processor charges.

  2. how I will get my PayPal 1099-k ? on the mail box or I will have to download it from PayPal website ?
    because PayPal shows that i don’t have tax reports for 2014 !, i don’t know ! it might be early for now, its Jan 23 i got nothing.
    please advice, thanks

    1. Miranda Marquit

      My 1099-K is something I just download on PayPal’s web site. It should be available by January 31. If you haven’t received anything by the third week in February, contact PayPal. Also, realize that you won’t receive a 1099-K unless you have done $20,000 in business, and have at least 200 transactions.

      1. thanks Miranda for your replay
        I can see my 1099-k in paypal website now, but I didn’t get it on the mail yet, its Jan 27.

        I’m still not sure what should I do with it ! the numbers on 1099-k matches my calculations.

        still don’t know what’s the point, my be just to check if my numbers are right.

      2. I just received one today although line 1a and 1b both show only $1,600 and number of transactions show only 37. Third party network is checked. So why did I get this, and do I have to file ???

        1. just found out if you live in Massachusetts or I think he said Vermont and it is over $600 you will get the form anyway !!

          1. Just to let you know. I called paypal and told them I only made $1600 and 37 payments so I should not have received the 1099-k. He said that there’s only 2 states that if you made over $600 you would get the 1099-k anyway. That’s why I received mine. just my luck…….

  3. So confusing! I do a lot of work through Elance. They issue me 1099’s for the clients I worked for through their platform during the year. When I receive the payments into my Elance account, I can then transfer funds to Paypal or my bank account. Sometimes they go to Paypal, sometimes to my checking account, sometimes split between the two.

    Paypal records these transfers of funds from Elance as a payment for service, so they report it on the 1099-k in addition to it being on Elance’s 1099 Misc.

  4. i didn’t pass the $20K/200 threshold.
    how would i report my ebay income. what form?
    also i didn’t make a profit,i actually had a loss.

    1. Miranda Marquit

      If you are a sole proprietor, then you probably need to report your profit and loss on Schedule C. You should also check with a tax professional to make sure that your efforts are considered a business, and not a hobby.

      1. I received a 1099K from paypal for tax year 2013 in early 2014. I did not meet the number of transactions or the dollar threshold. I called paypal and they told me it was sent to me in error and would not be sent to the IRS. I just let it lie at that point. I just received a letter from the IRS that adds the paypal funds (yes, paypal did send it to IRS) to my regular income and requires additional payment for this “income”. I’ve talked to paypal 3 times now and they promised to send a corrected 1099K (7 days now with no receipt). My plan is to send the corrected 1099K with an explanation that the sales were from internet type garage sales. Do you see any other way to correct this? I am very angry with paypal due to their erroneous issuing, bad advice and now the circus I am facing to get the corrected copy. I wonder if there is any legal action I can take due to this?

        1. Miranda Marquit

          I would consult with a tax attorney at this point. That’s a tough situation to be in. Although, technically, even if PayPal didn’t report, the IRS would expect you to report all of your income, whether or not you receive a 1099.

          1. Call the IRS Taxpayer Advocate Service in your area. Their phone number is required to be in a directory and is online. This is an excellent example of the type of problem they can help you with. Former IRS Taxpayer Advocate.

      2. If it is a hobby and there is no profit or money transferred to your bank or anything but there are a significant amount of transactions and money being moved (around 200 transactions but $15,000 so under the 1099 threshold) then would you have to report it in your taxes?

  5. i wasn’t aware that i will get a 1099-k now i have to pay taxes for this income,
    what deductions i can put and how does it goes with the capital i put in?
    do i have to pay tax for the amount that is on my 1099-k or for just the profit ?

    1. Technically, you are supposed to pay taxes on all your income. Regular business deductions can be used to reduce your income. Depending on your business organization, a profit and loss statement, or listing everything on your Schedule C, can help you show which expenses can reduce your income. You should contact an accountant or a tax professional for help figuring out what you are eligible for.

      1. Hi Miranda,
        If you are a taxpayer that files a 1040 and has never had a schedule C, but recieving a 1099-K what should I do. I purchase products and get reimbursed for reviewing so the products comes to be free. If I report a schedule C I would be reporting a small loss. How should I treat the 1099-K if it is from reimbursements for products I am reviewing.

        1. You should include a profit and loss statement. It will include the 1099-K information in the income section, but also list out your expenses. So, if you paid money to buy items to review, those need to be listed as expenditures. Then, you can show that you have expenses that offset that income. A tax professional should be able to help you with this. Anyway, then you put the amount of your loss on the Schedule C. But you will need to list out the things you bought as expenses somewhere. And that should show that you’re offsetting your income.

  6. They need to inform businesses better about the 1099-K. I was stressing about potentially having to face a huge amount of paperwork to pay 50+ anthology authors small amounts.

    This makes things 1000 times simpler for them and for me. If I hadn’t stumbled onto a similar article, I would have never have known. This information isn’t obvious on the IRS website, and they’ve stopped answering business questions on the help line that aren’t employment related!!

    1. Miranda Marquit

      You shouldn’t, since the guidance is $15,000 AND 200 transactions. But you might still get one. And even if you don’t, remember that the IRS still expects you to report that income.

    2. Miranda Marquit

      You shouldn’t, since the guidance is $20,000 AND 200 transactions. But that doesn’t mean that PayPal may decide to send you something anyway. Even if you don’t get a 1099-K, though, remember that the IRS still expects you to report that income.

    3. Hi Miranda,

      I get payments from Ebay transactions and then purchase postage through Paypal for USPS shipping of the item (shipping was paid by customer as part of Ebay payment). Are these postage transactions that I am paying count towards the 200 items allowed?

      1. Your purchases don’t “count” as the transactions, as far as I can tell. However, you might want to double-check with an accountant. You can also go to PayPal’s tax center. If you are eligible for a PayPal 1099-K, they will have it available for you.

  7. Well be prepared I got a letter from the IRS in March about my 2013 reporting. Multiple things were double reported due to the 1099k and the 1099misc I received. I requested corrected 1099 from several people and they refused to provide this. I sent all of my income information as well as the refusal emails. The IRS is now charging me penalties and stating they will only change it if I get PayPal to adjust their 1099k. I am going to try to call PayPal tomorrow not sure how much success I will have. I feel like I am being harassed by the IRS. Good luck getting one on the phone from the IRS!

    1. Same here Christina- I had double reporting and have been trying to get my 2013 taxes resolved since last October. Added overdue penalties and interest too!!!!!

  8. Let me see if I understand this correctly, $20,000 & 200 transactions a 1099k will go to me as well as the IRS? If I stay under that amount and still receive a 1099k does this means PP send one to the IRS?
    Another question, I totaled all money received by PP and have $19000, is this what PP goes by “money received” ? or are there other calculations PP uses to come up with a $ amount?
    Thank for answering my questions

    1. If you receive a 1099k, assume that a copy went to the IRS as well. The guidelines say that a 1099k HAS to be submitted if you have $20,000 + 200 transactions, but that doesn’t mean that something won’t be sent along with less. That’s the requirement, but there are always overachievers in the world. If you receive something, assume a copy has been sent to the IRS as well.

  9. Regarding the 200 transactions, does it only apply to 200 transactions where payment was received? I paid multiple vendors which would put me well over 200, but as for received payments, I am well under the 200 threshold. Should I still expect to get a 1099k?

    1. Miranda Marquit

      Unfortunately, I’m not sure. Consult with a tax professional on that. All I can see when I check into is just the “200 transactions and $20,000 in income” guidance. As with so many of these, it’s open to interpretation. But keep your eyes peeled for it, just in case. You should have what you’re getting by the middle of February.

  10. Hi there. Thanks for writing this article.
    Paypal reported my taxes for 2013 that were already reported by the company who pays me. Therefore I was double taxed by the IRS, and the IRS is stating that I owe money that I don’t in fact owe. Above you said Some of your income might be double-reported. What do you do if this happens?

    1. You’ll have to reconcile your 1099-K with the applicable 1099-MISC forms. That means cross-referencing everything, perhaps in a spreadsheet. You’ll have to show your cross-referenced information to the IRS.

      1. I sent them copies of everything including a spreadsheet. Guess what, NOTHING happened except them continuing to threaten me. I ended up paying (aka being extorted by the IRS) as they sent an additional letter basically stating with interest the amount owed would start doubling every 3 months. I did refuse to sign their document though.

        1. I’m sorry that happened 🙁 I find having representation helps. But, at the same time, sometimes there’s nothing you can do when the IRS decides to be awful about everything.

        2. Christina, I went into my paypal and just filtered out the 2 companies that had reported my income as well as paypal. I printed it out ( a sheet of paper for each) and sent it back to the IRS. That should prove to them that that payment went through PP.

  11. I received a 1099-k from PayPal but didnt meet the $20,000 in gross income requirement. I didn’t make a profit as to my expenses exceeded my income. How do I go about reporting my expenses? I don’t see a place other than the NOL, is that the only place? And isnt the NOL only good for seeing it on next years return?

    1. Depending on how you file your taxes, you can list your expenses on a Schedule C, or have them listed as part of your P&L. This way, you can offset the income listed from your 1099-K with your expenses. Consider consulting a tax professional or accountant for more information on how you can show that your expenses exceeded your income to result in a loss.

  12. If I have a contractor that is well below the threshold for 1099-K but is also below the $600 threshold for a 1099-MISC should I report the entire income on a 1099-MISC? Otherwise, the wouldn’t receive a 1099 at all.

    1. I would consult with your accountant if you are in question. However, if they are below the threshold for the 1099-MISC, you might not need to issue anything at all.

  13. Hi Mirada,
    Thank you for your write up!
    Wondering If you could advise me in anyway!! I was sent a 1099 from Square for $37,000.00. I run a gallery and only take 30% off each sale the rest goes to the artist. So really I only made 30% of $37,000. Do I have to now 1099 each of my artists stating how much they sold their art for and how much I got? I need to show proof that I didn’t make all that money:(

    1. Miranda Marquit

      It depends on how you paid the artists. If you pay by check directly, you probably need to issue the 1099s. If you sent the money through a third party like PayPal or Square, you probably don’t need to issue 1099s. However, you do need to list who you send money to and how much it was so that you can deduct it as a business expense against your income. Check with a tax professional if you have any questions about how to properly conduct the money you sent onto the artists. You’ll want to deduct that is reported income.

  14. Great article Miranda. I didn’t even know that this income had to be reported. I do my taxes online using TaxAct and everything went smooth the last two years. However I just received a $19,000 tax bill for the Paypal Money that I received from 2014. I assume I will also have to create one for 2015. How do I adjust for the past year with a schedule C so I can drop my taxes due? Can I still amend a 2014 and 2015 tax filing that has already been completed? Thanks for your help!

    1. Miranda Marquit

      The IRS expects you to report ALL income that you make. You can amend your returns up to three years back, so you should be able to amend 2014 and 2015. If I were you, I’d get an accountant to help me. Actually, I use an accountant every year anyway. But whenever I have questions, I definitely turn to my accountant.

  15. Hi Miranda.
    This is all soooo confusing. My situation is this; I am currently over the $20,000.00 and 200+ transactions on Ebay. I’m actually selling items for somebody else and only receiving 20% of the total sales for my work. Should I deduct every time that I send payment to him via Paypal as a “business expense”? Obviously I don’t want to be held responsible for paying taxes on his 80%.
    Thanks in advance!

    1. As always, not a tax professional. But, yes, you should be expensing what you send. I keep track of all that type of info, and list it as an expense against the income from PayPal.

  16. so what u are saying is that if We pay a contractor consultant (individual) via paypal 18k over the course of the year (1500/mo), and that same contractor does not receive any other payments into his paypal account that pushes him over 20K or 200 transactions paypal does not send him a 1099k AND we do not send him a 1099 based on the “rule”….then the contractor doesn’t report the income unless he remember to ?

    1. Miranda Marquit

      It’s on the contractor to report their income as required. If you’re paying through PayPal, you shouldn’t need to issue a 1099.

  17. Miranda, I realize that even if I don’t meet the $20,000/200 transactions threshold, i still need to pay taxes on all monies received. Problem is,i don’t know how to report monies under the threshold or how to reconcile it to my records.

    1. Miranda Marquit

      Hopefully, you keep records of your income and expenses. Then, all you need to do is report it on the appropriate schedule, most likely Schedule C if you are a sole proprietor. Report it as income on Schedule C and go from there. If you have an accountant, s/he should be able to help.

      I keep records of all my income in my personal finance software, and all my expenses. I include gross income from PayPal, and record the fees PayPal charges as expenses. This helps me keep everything straight. PayPal offers a file you can download to help you reconcile, if needed.

      Best of luck!

  18. I live in Massachusetts and received one of these for the first time for just over $1,200 and 62 transactions. This is just from reselling things I no longer need, not a business. I’ve never reported this income before – do I really need to now?

  19. I just got hosed by Paypal too, like Laura. I’m approaching retirement and starting to downsize, so I sold a bunch of things ($9k worth) I no longer need on eBay. Now I get a 1099-K? Why? I’m not a business, these are my personal items I’m getting rid of – personal items I already paid for with my after-tax income! No more eBay for me, sorry, only yard sales.

  20. I am a CPA in Vermont and several of my clients are receiving 1099-K forms from Pay Pal for the sale of personal items they no longer wanted. The average number of transactions has been around 10 with gross payments of $1,000. This is ridiculous! What a waste of time for everyone involved. The IRS says you don’t report income from the sale of personal items unless you are selling them for a gain. Schedule C is only used for income received as a result of a business! Selling personal property for a loss does not meet the definition of a business.

  21. A grandson started an ebay account for and with his grandmother. Collectively they went over the transaction limit and receive a 1099K in only the grandmother’s name. HOW does one go about separating the 1099K into two accounts?

    1. You really can’t separate it into two people. One person owns the account, and that’s who gets the 1099-K. You’d have to create a business partnership and set up distributions in a way that would reflect the situation. Check with a knowledgeable accountant about this. Unfortunately, a personal account is just that — a personal account where it’s all credited to the account owner.

  22. “I?m always ready to cross-reference my 1099-K information with my records.” Is an unnecessary duplication of effort provided you correctly account for all taxable revenues and that the 1099 received reports MORE than what the actual receipts were.

  23. Greetings,

    I just got my 1099-K from Pay Pal but they put my SSN as the Payee and not my business EIN. We are a Chapter S Corp and I had put the proper EIN in our Pay Pal Business Account. It was submitted to IRS under my SSN instead. Any Idea how I can correct this so its under the company’s EIN instead.

    1. I suggest speaking with a tax professional to help you, or with an accountant. Barring that, keep good records so you can reconcile if you end up getting audited. You may also have to contact PayPal and ask them to submit a corrected 1099-K.

  24. I’m confused. This is the first year that I received a 1099-K from PayPal. I didn’t reach the Federal threshold, but I did reach the State of Illinois threshold. First, what form do I use to claim expenses i.e. Ebay charges, postage rates, packing material. The second question, can it plug this all in Tax Act or is there some other step I need to take. Thanks!

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top