What’s a Form 1099-K?
Form 1099-K is used by third-party settlement organizations (“TPSOs”) to report the payment transactions they process for retailers or other third parties. If you have a Virginia mailing address, TPSOs are required to send you a Form 1099-K when they pay $600 or more to you in the previous calendar year.
Some examples of a TPSO include:
- The company who handles reservations and payments if you rent your home, or part of your home, out temporarily;
- The company that books fares and facilitates payments for rides you provide;
- Peer-to-peer payment or money transfer companies;
- The company that handles payments for electronic auctions or marketplaces; or
- Any similar business.
Why did I receive a Form 1099-K?
You received Form 1099-K because a TPSO paid $600 or more to you in the previous calendar year. This may be the first time you’re receiving a 1099-K because the threshold in Virginia for TPSOs to provide this information to you has changed and is now lower than the federal threshold. See Tax Bulletin 20-10 for more details.
Is this a new tax?
No, the 1099-K does not impose a new tax. The form is strictly to notify you that you received these payments, so you can accurately report income if needed when you prepare your taxes.
Do I need to take any action?
It depends on whether the payment was income that is subject to tax. Form 1099-K is an informational document and amounts included within are not necessarily subject to income tax in Virginia. You should use the information reported in conjunction with your other records to determine whether it is taxable income and to determine your correct tax. We recommend that you keep documentation of reportable transactions available if not all amounts included on Form 1099-K should be considered taxable income.
What amounts included on Form 1099-K are taxable?
Amounts included on Form 1099-K are generally includable as part of your gross income (although you may be able to deduct certain expenses associated with earning such income) if received from activities such as:
- Working as an independent driver for hire;
- Selling items as part of a hobby or business;
- Renting or leasing personal or real property; or
- Similar activities.
Amounts included on Form 1099-K are generally excluded from your gross income if they were received:
- From selling personal items at a loss;
- As a reimbursement; or
- As a gift.
Here are some examples:
- Joe works part-time as an independent driver for hire, and, over the course of a year, receives income of $10,000 via a TPSO. The $10,000 should generally be included when calculating gross income. He may be able to deduct certain business expenses.
- Katie is downsizing her home and sells furniture on an auction site for $5,000. The original purchase price of the furniture was $9,000. The $5,000 is NOT subject to tax or any reporting as it is a function of selling personal items at a loss.
- Ben, a full-time accountant, also has a hobby selling hand-painted holiday decorations on an auction site. He sells $3,000 worth of decorations over the course of the year. That $3,000 amount should generally be included when calculating gross income. He may be able to deduct certain expenses.
- Denise goes to dinner with her 14 graduate school classmates to celebrate the end of the term. She pays for a $1,500 meal on her credit card and her classmates reimburse her for the expense via a peer-to-peer payment system, totaling $1,400. That $1,400 is NOT subject to tax or any reporting as it was not payment for goods or services, but simply reimbursement.
If you have questions about the proper classification of amounts included on your Form 1099-K, we recommend that you contact a tax professional, as the treatment of certain forms of income may vary depending on your particular facts and circumstances.