What it means
Form 1099-K is the information return a payment settlement entity files to report the gross payments it settled to you in a calendar year. That includes card processors and third party settlement organizations: payment apps and online marketplaces. You get a copy by January 31, and so does the IRS.
The One Big Beautiful Bill Act, signed July 4, 2025, restored the original federal threshold for third party settlement organizations, retroactively: a form only when gross payments exceed $20,000 and the number of transactions exceeds 200. The $600 threshold that had been scheduled is gone. Card payments have no threshold at all: the processor reports them at any amount.
Some states require forms at much lower amounts. Massachusetts requires one for a payee paid $600 or more, and Illinois for more than $1,000 across four or more transactions. A processor can also send a form below any threshold, so receiving one tells you little about whether you crossed it.
Box 1a is gross: every payment before refunds, chargebacks, fees and anything else comes off. It includes sales tax and shipping you collected. Revenue in your books should be lower, and the difference should be explainable line by line from the processor's reports.
A sensible walk starts from Box 1a, subtracts refunds, chargebacks lost and sales tax collected, and lands on net sales; subtract fees as well and you land on what reached the bank. If you use more than one processor, do it for each form and add them up, and watch for card payments that also show up on a 1099-NEC from a customer.
Why it matters. The IRS matches Box 1a against your return. It's gross, before refunds, fees and chargebacks, so it almost never equals revenue, and the difference needs an explanation you can produce.
Try it with your numbers
Change any number. The working below updates as you type.
Net sales = Gross − Sales tax − Refunds − Chargebacks · Deposits = Gross − Refunds − Chargebacks − FeesBox 1a: every payment, before anything comes off.
Disputes lost, not counting dispute fees.
Processing and dispute fees deducted.
Collected from customers and owed to states.
Net sales behind the 1099-K
$228,500.00
How it’s worked out
- 1Federal 1099-K required?$250,000.00 > $20,000.00 and 1,800 > 200Yes
- 2Should have reached the bank$250,000.00 − $8,000.00 − $1,500.00 − $7,600.00$232,900.00
- 3Net sales for the books$250,000.00 − $12,000.00 sales tax − $8,000.00 − $1,500.00$228,500.00
Box 1a is gross: it isn't reduced by refunds, chargebacks, fees or sales tax, so it should be higher than revenue. The difference should be explainable from the processor's reports, not a plug. Some states require a 1099-K at much lower amounts (Massachusetts at $600, Illinois above $1,000 with four or more transactions), and a processor can send one below any threshold. Fees are an expense, not a reduction of sales.
The entry, worked
In March a processor settles $25,000 of card charges, including $1,200 of sales tax, then deducts $800 of refunds and $760 of fees and pays out $23,440.
| Account | Debit | Credit |
|---|---|---|
| Cash — operating account | $23,440.00 | |
| Payment processing fees | $760.00 | |
| Sales refunds | $800.00 | |
| Revenue | $23,800.00 | |
| Sales tax payable | $1,200.00 | |
| Total | $25,000.00 | $25,000.00 |
Booked gross, the month's charges ($25,000) are what the 1099-K counts; revenue, refunds, fees and sales tax each land in their own account, so the year-end walk is a sum, not a reconstruction.
Common questions
Why is my 1099-K higher than my revenue?
Because it's gross. It doesn't subtract refunds, chargebacks, fees or sales tax, and it can include payments for sales recorded in a different period. A reconciliation explains the difference.
If I'm under the threshold, is the income tax-free?
No. The threshold only decides whether the processor has to file the form. Income is taxable whether or not a form arrives.
Do I issue a 1099-NEC if I paid a contractor by card or PayPal?
Card and payment-platform payments are reported by the processor on Form 1099-K, so you don't also issue a 1099-NEC for those payments to a contractor.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- ReconciliationComparing our record to an external party'sGlossary
- How to reconcile Stripe payouts to your booksA Stripe payout is charges less fees, refunds and disputes, batched across days. How to book it gross, tie it to the bank, and keep revenue right.Guide · 4 min
- Form 1099-NEC for startups: threshold, deadline, e-filingWho gets a 1099-NEC, the new $2,000 threshold, why a W-9 comes first, what goes on a 1099-K instead, and the deadlines, penalties and state copies.Guide · 7 min
- W-9s and backup withholding: a vendor onboarding guideWhen to ask for a W-9, how IRS TIN matching works, and what happens when a vendor won’t give you one: 24% backup withholding, owed by you.Guide · 6 min
- How to pay vendors: ACH vs wire vs check vs cardACH, wire, check or card: what each payment rail costs, how long it takes, where the fraud risk sits, and how each payment is recorded in the books.Guide · 6 min
- Closing the monthStatements are not the end. The close proves every balance against something outside the ledger, then locks the period so the numbers can't quietly change.Lesson 13
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.