The 1099-K is the latest addition to the family of 1099 IRS documents, joining other 1099 forms that report things like interest income, dividends and distributions and miscellaneous income. The new 1099-K was approved last year to track income from companies that do business using third-party payment processors such as credit and debit card companies and services like PayPal.
Why do we need another form?
The federal government estimates that there’s a $300 billion “tax gap” each year – the difference between the amount of money individuals and businesses owe to the government, and what they pay. The new form is intended to help catch those who don’t properly report their income to the IRS.
Who is impacted?
There’s a floor to the new requirement, so you won’t receive a 1099-K for 2011 if you have less than 200 transactions for the year, and they total less than $20,000.
However, it’s not just credit card and debit card companies that have to report these levels of transactions to the IRS. The new law also applies to companies like PayPal and Amazon.com.
Because of the change in the law, you’ll have to report your Social Security number or employer identification number to payment processors like PayPal or credit card companies.
What if I earn less than $20,000 and don’t have 200 transactions this year?
Although neither you nor the IRS will receive a 1099-K from your payment processor, you will still be required to report the income you earn to the IRS.
About the Writer
Susan Ladika has been a writer and editor for 25 years. Her freelance work has covered everything from business to travel to science to international issues, and have appeared in such publications as Science, Town & Country, HR Magazine, Developer, The Wall Street Journal-Europe, The San Francisco Chronicle, and many others. She has also done extensive editing as a newspaper and wire service editor holding positions such as the Tampa Tribune Bureau Chief.
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What type of business do i need to get if i receive a 1099-k,is it better if i use an EIN or my social security number?
Hi Joe – The type of business entity you may form will depend on many factors and to make a recommendation we would need much more information about your business. Typically, it is better to use an EIN but what identification number you can provide on the new Form 1099-K will depend on your entity (i.e. disregarded, partnership, corp). If you go to page 4 of the W-9 form instructions you will see the guidelines for which identification number (social security or EIN) you can provide based on your entity type. We hope this information helps. If you have more specific questions, please submit your question to our tax professionals – http://www.bidawiz.com/