What is a Form 1099-K and why did I get one?

A Form 1099-K comes from a payment processor or platform that settled card or third-party network payments for you during the year. It reports the gross amount settled, without regard to adjustments for credits, discounts, fees, refunded amounts, shipping, or any other amounts, so it will rarely match your profit and often will not match your deposits. You reconcile it on Schedule C.

Law changing — verify before acting

A rule behind this answer changed recently. Confirm the current treatment with an advisor before acting.

Key points

Form 1099-K is filed by the payment settlement entity that settled payment card or third-party network transactions into a payee's account during the calendar year.
The amount reported on Form 1099-K is the gross total of reportable payment transactions without regard to any adjustment for credits, cash equivalents, discounts, fees, refunded amounts, shipping, or any other amounts, so it does not represent profit.
A sole proprietor reports gross receipts on Schedule C from their own records and deducts processor fees and refunds, rather than copying the 1099-K figure as income.
A payment a client makes by card is reported by the processor on Form 1099-K and should not also appear on a Form 1099-NEC from that client.
Business income is reportable whether or not a Form 1099-K is issued, and the reporting threshold has changed with recent legislation, so it needs checking each year.

Who sends a Form 1099-K and why did one arrive?

A payment settlement entity files Form 1099-K for payments it made in settlement of reportable payment transactions during the calendar year. A reportable payment transaction is a payment card transaction or a third-party network transaction, so the filer is typically a card processor, an online marketplace, or a payment app that moved funds into your account on a customer's instruction.

Receiving one is routine rather than adverse. It means money was settled to you through one of those channels and the total was reported to the IRS as well as to you. Anyone taking card payments, selling through a platform, or being paid through an app for goods and services can expect one.

Why does the amount not match my profit or my deposits?

Because the form reports a gross figure. It shows what was settled before the processor's fees were deducted, before refunds went back to customers, and before chargebacks were taken out. Profit is what remains after all of that plus every other business expense, so the two numbers are not comparable.

Deposits usually differ too. A platform that nets its commission before paying out, or a business with a meaningful refund rate, will see bank deposits well below the reported total. Both figures can be accurate at once; they measure different points in the flow of money.

How do you reconcile a 1099-K to Schedule C?

Work outward from your own records, not from the form. Gross receipts on Schedule C come from what you actually sold during the year. Processor and platform fees are then deducted as an ordinary business expense, customer refunds are recorded as returns and allowances, and what remains flows through the rest of Schedule C to profit.

Then compare. If your gross receipts and the reported total differ, you want a one-sentence explanation — timing at the year end, refunds, fees netted before payout, or non-business amounts included. Bookkeeping that can produce that sentence on demand is the difference between a routine year and a correspondence exchange with the IRS.

What are the common mistakes with a 1099-K?

Double counting is first. A client who pays by card has that payment reported by the processor on a 1099-K, so the same amount should not also reach you on a 1099-NEC from that client. Where both arrive, the income is still counted once and the overlap is explained rather than added.

Non-business amounts are second. A personal item sold at a loss, or a friend reimbursing a shared cost through an app marked as goods and services, can land inside the reported total without being business income — though a personal item sold at a gain is taxable and must still be reported, and the IRS publishes guidance on how to present that on the return. Leaving it unaddressed is what generates a notice. Finally, the threshold applies only to payment apps and marketplaces, not to card processors, and it has shifted with recent legislation and reverted upward, so verify it for the year in question — and remember that income is reportable whether or not a form was issued. If a 1099-K arrives after filing and the return was genuinely wrong, Form 1040-X is the way to correct it.