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This year, some gig workers, freelancers and small business owners received an unfamiliar IRS tax form: a 1099-K. If you’re one of them, how you report this form on your tax return could accidentally trigger an overpayment to the IRS.
You’ll receive a 1099-K form if you use a third-party payment service, such as PayPal, Venmo or CashApp, to receive freelance income and you earned $5,000 or more via these platforms in 2024. The problem is that you might also receive other 1099s for this same income.
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As an IRS-enrolled agent and tax expert, I know that receiving two tax forms for the same income can make it easier to accidentally report your income twice. Here’s what you should do if you receive a 1099-K to avoid this expensive mistake.
Read more: Best Self-Employment Tax Software
Why am I receiving a 1099-K?
A 1099-K form is a relatively new IRS income tax form that freelancers and business owners who earned more than $5,000 through third-party payment platforms in 2024 may receive.
The Housing and Economic Recovery Act of 2008, passed after the great financial crisis, included a new reporting provision for banks and payment processors to help the IRS combat tax evasion by self-employed individuals. The IRS estimated that the government lost almost half a trillion dollars in tax revenue because self-employed filers were underreporting their income.
This change led to the creation of tax form 1099-K, which rolled out in 2012 and required banks, credit card processors and intermediary payment service providers to send it to any self-employed individual or business that received more than 200 transactions or more than $20,000 worth of transactions through the payment processor.
In 2022, the IRS announced it would lower this reporting threshold. After two years of delays, the agency started requiring third-party payment platforms to issue a 1099-K to anybody receiving more than $5,000 per year in earnings through a payment processor. This threshold is set to go down to $2,500 next year and $600 in 2026.
Read more: When Your Tax Professional Makes a Mistake, Here’s Who Takes Responsibility
Why did I get multiple tax forms for the same income?
As a freelancer or gig worker, you may also be used to receiving either a form 1099-MISC or 1099-NEC for the work that you do. Companies are required to issue these forms for any work over $600 that you perform in a year.
If you’re paid via a third-party payment processor like PayPal or Venmo, you could now end up with multiple tax forms for the same income: a 1099-NEC or 1099-MISC from the company you worked for and a 1099-K from the payment platform.
This can be confusing to navigate, especially if you’re earning freelance income for the first time. Even some professional tax preparers may accidentally enter both income sources and accidentally double-report your income. This could severely impact your refund, how much you owe or your eligibility for various tax credits.
It’s up to you to report the correct amount of income — don’t expect the IRS to catch an overpayment mistake. If you’re hiring a tax professional to prepare your return, I recommend providing them with a total of all your income for the year separate from your 1099 forms to avoid double-reporting income. If you use online tax software yourself, double-check your return to see how it’s adding up your income from the various sources.
If the tax software you’re using doesn’t support corrections to the 1099-K, 1099-MISC and 1099-NEC entries to avoid reporting overlapping income, then consider not entering data from these forms into the tax software at all. Instead, you can enter only your total revenue for the year and skip the entry of the 1099 forms.
Ready to file your taxes? Check out CNET’s tax partners.
Risks of misreporting 1099-K income
Multiple issues could arise from more people receiving 1099-Ks this year.
You could end up with a higher tax bill
If you accidentally double-report your income, you might pay more than you actually owe in self-employment taxes.
Because of how IRS computer systems are configured, the IRS computers will not detect an over-reporting of income and send you a refund for the difference. If you report too much income, the IRS simply assumes that you were paid for some work in some other way, such as by cash or check, rather than an electronic payment processor.
You might miss out on tax credits, reducing your refund
If the income on your tax return is higher than it actually was, it can impact your eligibility for various tax credits, such as the Earned Income Tax Credit. You could end up having to pay back an excess tax credit you received or receive a lower refund than you’re legally entitled to.
How to file a 1099-K
Most freelancers, gig workers and independent contractors report their income and expenses on IRS Schedule C, which is then attached to their 1040 return. To correctly report your income from all sources, first compare all your 1099-K, 1099-MISC and 1099-NEC forms against your own bookkeeping records to ensure you included all of your income for the year.
Then, enter this total revenue number into Schedule C, Line 1 or the “gross receipts or sales” box on the screen in your tax software. Entering your revenue this way is the best way to avoid any double-reporting issues.
Schedule C is also where you deduct all of your eligible business expenses. Your tax software will guide you through common business deductions for self-employed individuals.
Since you received a 1099-K, be sure to deduct any fees and expenses that the third-party payment processor charged you. The dollar amount that they report on the 1099-K is the gross total. On your Schedule C, you can deduct any fees charged by PayPal, Venmo or another payment app for using their platform. These fees can be significant, so be sure to log in to your web or app account and total up all those fees for the year, as this is a massive tax deduction you don’t want to miss out on.
What if I receive a 1099-K by mistake?
Some payment processors may issue an erroneous 1099-K. For example, if your friends frequently reimburse you through Venmo for dinners out, Venmo may mistakenly flag your account as a business account and issue a 1099-K.
If this occurs, contact the payment processor and request a corrected 1099-K. If a correction isn’t possible, the IRS recommends reporting the 1099-K income under Other Income on your 1040 (Part I — Line 8z) and then adjusting it out under Other Adjustments (Part II—Line 24z) to cancel it out.
Keep records of your transactions and what they were for in case the IRS asks questions.
Help, I accidentally reported a 1099-K. What should I do?
If you’ve already filed your taxes and think you misreported income from a 1099-K, you should immediately file an amended tax return, IRS Form 1040-X. Your tax return software should also be able to generate this form for you.
On Schedule C of the amended return, adjust the income downward to what it should be, and then include a note on the amended return in the comment section, something such as, “1099-K income was included via 1099-NEC.”
File the 1040-X electronically for the fastest processing.
Even after filing the amended return, be sure to retain copies of all your payment records and income records just so that you can prove to the IRS that the income was, in fact, double-counted.
Always double-check your tax return
The new 1099-K rollout could cause confusion when filing your taxes. Make sure you don’t accidentally double-report income detailed on two different tax forms. Whether you’re filing independently, working with an accountant or using tax software, always double-check your tax return to look for income discrepancies.
The IRS will contact you if you underpay them, but they won’t be able to flag if you’ve overpaid them. It’s on you to catch any mistakes to ensure you don’t accidentally pay the IRS too much.
Ready to file your taxes? Check out CNET’s tax partners.
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