There are situations when the gross payment amount (Box 1a) on Form 1099-K may not belong to you. So, what do you do?
The IRS has issued the following guidance for these situations.
1099-K issued to you instead of your business (1065 or 1120)
- Contact the issuer and ask them to send a corrected 1099-K with the business EIN instead of your SSN.
- Keep all correspondence with the issuer to show the correction.
- Report the payments from the 1099-K on the appropriate tax return.
Shared Credit Card Terminal
If you share your credit car terminal with another person or business, your 1099-K may contain transactions that do not belong to you.
- You may need to issue forms 1099-MISC or 1099-K to each person or business that you shared the terminal with. Visit the IRS website for information.
- Include the total payment card transactions and any other income that belongs to the other person or business on the 1099-K/1099-MISC.
- Keep records of the payments issued to each person/business. (including written shared terminal agreements and cancelled checks).
Transactions don't belong to your business?
If you bought or sold your business during the year, you may receive a 1099-K that includes transactions made before or after the sale that do not belong to you. This happens when the terminal isn't updated with the new businesses information.
- Request a corrected 1099-K from the PSE or Filer on the form. The business name and number should be contained on the 1099-K.
- Keep a copy of the corrected 1099-K with your records.
- Keep records of the sales agreement showing the timing of the ownership change.
Transactions don't match your business records
If you change your entity or tax ID but continued to use the same card terminal, the amount shown on your 1099-K may not match your business records.
- Notify the merchant acquirer of changes to name and tax ID immediately.
- Keep records supporting the correct income and deductions for each business entity.
Cash back Transactions
If you permit customers to receive cash back when they use their debit card, the payments are reported on the 1099-K:
- Cash back payments are not part of your gross receipts.
- You cannot claim cash back payments as business expenses.
- Keep records of all cash back activity.
More than one business on a single 1099-K
Your 1099-K may contain payments for more than one of your businesses if you process the payments on a single terminal. You will need to report the payments for each business on their respective schedules.
For example, If you received rental income payments and payments for your retail business on the same terminal, your 1099-K would represent income for both businesses. You will need to report each portion of income on the correct Schedule C or E.
Keep records for each business separately to correctly allocate the income on the 1099-K.
For additional information on 1099-K reporting, please visit our Knowledgebase