Form 1099-K Basics for Business Owners Before Year-End

The short answer: if you take credit and debit cards through a merchant account, your processor reports your gross card sales to the IRS on Form 1099-K, with no minimum threshold. Payment apps and marketplaces, which the IRS calls third-party settlement organizations, only have to send a 1099-K once you exceed $20,000 and 200 transactions. Either way, the amount on the form is gross — before refunds, fees, and chargebacks — so it won’t match your deposits, and that’s normal.

Every January, Orange County business owners call us confused by a 1099-K that looks too high. A little prep in December makes tax season much easier.

Who Sends a 1099-K, and When?

Two kinds of companies send Form 1099-K:

• Merchant acquirers — the processor behind your merchant account. For card transactions, the IRS says there is no minimum reporting threshold, so you can expect a 1099-K whatever your volume.
• Third-party settlement organizations — payment apps and online marketplaces such as PayPal, Venmo business profiles, and Etsy. The One Big Beautiful Bill Act restored the reporting threshold for these to more than $20,000 in payments and more than 200 transactions in a calendar year.

Forms are generally issued by January 31. If you use both a merchant account and a payment app, you may receive more than one.

Why Doesn’t the 1099-K Match My Deposits?

Because the 1099-K reports the gross amount of payment transactions, it doesn’t subtract:

• Processing fees deducted from your deposits
• Refunds and returns
• Chargebacks
• Sales tax and tips that went into the card total

Your bank deposits will almost always be lower than the 1099-K total. That’s expected. What matters is that your books can show how you get from the gross number to what you actually earned.

What Should You Do Before December 31?

• Confirm your processor has the right legal name and tax ID (EIN). A mismatch can trigger IRS notices and even backup withholding on your deposits.
• Download your monthly statements for the year and keep them with your tax records. They show gross sales, refunds, chargebacks, and fees by month.
• Total your card processing fees. They’re generally a deductible business expense, and your statements are the record.
• Separate business and personal payment apps. Personal reimbursements sent through a business profile can end up reported as business income.
• Note any processor switch during the year. If you changed processors, expect a 1099-K from each one, each covering only its own months.

How Do You Reconcile It in January?

Take the gross figure on each 1099-K and compare it to the gross card sales on your statements for the same months. Then subtract refunds, chargebacks, and fees to reach your net deposits. Hand that worksheet to your accountant along with the forms. If the gross numbers don’t match your statements, call your processor right away. Errors are easier to fix before you file.

We’re not tax advisors, and this isn’t tax advice — your CPA should confirm how this applies to your business. What we can do is help you get clear year-end statements and make sense of your processing fees.

Frequently Asked Questions

Is there a minimum for 1099-K reporting on card sales?

For payment card transactions processed through a merchant acquirer, no — the IRS says there’s no de minimis threshold. The $20,000 and 200-transaction threshold applies to third-party settlement organizations such as payment apps and marketplaces.

Is the amount on my 1099-K my taxable income?

Not directly. It’s the gross amount of payments before fees, refunds, and other adjustments. Your taxable income is calculated from your full books, and your accountant uses the 1099-K as one input.

What if my 1099-K is wrong?

Contact the company that issued it and ask for a corrected form. Keep your monthly statements as backup.

Are credit card processing fees tax-deductible?

Processing fees are generally deductible as an ordinary business expense. Check with your tax professional for your specific situation.

Sources: IRS — Form 1099-K FAQs: General information