Taxes: The IRS introduces the 1099-K (AKA PayPal 1099) from your online payment provider

If you’re a small business and receive funds via credit cards online, or other online payments from your clients, you can anticipate receiving a 1099-K this coming tax year. The 1099-K is the IRS’ latest tax form for small business, which is provided directly to the IRS from your online payment provider (such as PayPal). You will also be receiving a copy, so you can match it to your own record of online payments (always important to double check). Essentially, this form is a record of your revenue from your online payment provider that will be directly reported to the IRS. The form will look like this:

Since your payment processor will be reporting your revenue directly to the IRS, it will actually cut down on your paperwork. You will not need to report it in the other 1099 forms (make sure you don’t double-state your income, as that would mean more taxes.) The most important thing to do is to record all your expenses (write-offs and deductibles) and file your return quickly to ensure you do not over pay your taxes. Also, make sure to report your PayPal or other merchant fees as a separate expense, as they will not be included in the 1099-K.

Clarification update: The income on your 1099-K still needs to be included on your Schedule C, as per usual.

Essentials:

• Payment providers may ask you for your Tax ID Number (TIN), Social Security Number (SSN) or, if you have one, an Employer Identification Number (EIN). You can get an EIN here. An EIN is a great alternative and preferred by many people doing business online to protect their SSN number.
• Only businesses that do over $20,000 in online sales and 200 transactions will receive a 1099-K
• The form only reports your business name, address, tax id number and gross credit transaction (not deductible merchant fees).
• If you have multiple merchant accounts or PayPal accounts, one 1099-K will issued for the same SSN/TIN/EIN, following the policies above.

In short, you do not need to do anything, other than make sure you do no overstate your income in other tax forms, and be sure to deduct all your relevant expenses, especially your merchant/PayPal transaction fees.

If you need more information, as always, talk with your accountant/bookkeeper, as they’re the experts. And, there is always the IRS’ 1099-K instructions. PayPal also has written a FAQ.