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Frequently asked questions about Form 1099-K notices from third party payment processors

Here you will find answers to common Form 1099-K questions.

I received a Form 1099-K notice from an online payment company. They said it was required by Massachusetts. What is a Form 1099-K?

Form 1099-K is used by credit card companies and third-party payment processors like PayPal (also referred to as “third party settlement organizations,” or “TPSOs” for short) to report the payment transactions they process for retailers or other third parties. Third party payment processors are required to send you a Form 1099-K, using either a Massachusetts Form M-1099-K or an IRS Form 1099-K, when they pay $600 or more to you in the previous calendar year.

Why did I receive a Form 1099-K?

You received a Form 1099-K because a third party payment processor paid $600 or more to you in the previous calendar year. You may not have received one in a year prior to 2018 because the threshold for reporting in Massachusetts has changed. Each year, people working as traditional employees receive a W-2, and people working as independent contractors receive a Form 1099-MISC as long as their earnings are $600 or more. These notifications help people prepare taxes more easily and accurately. People who are paid through companies such as Uber, Lyft or other “new economy” businesses often do not receive a W-2 or Form 1099-MISC. What we have done is apply the same $600 or more threshold that applies to recipients of Form 1099-MISC to recipients of Form 1099-K, so that the third party payment processors provide more information to our residents.

Is this a new tax?

This notice is not associated with any new tax. It is intended strictly to notify recipients that payments were made to them.

What is the difference between Form 1099-K & Form 1099-MISC?

Form 1099-K is used by credit card companies and third-party processors to report the payment transactions they process for retailers or other third parties. Form 1099-MISC is generally used to report payments made directly to independent contractors. For payments made in 2020 and after, payments to independent contractors will generally be reported on Form 1099-NEC rather than Form 1099-MISC.

Since I received a Form 1099-K notice, does that mean I owe tax? What do I need to do?

It depends on whether the payment made to you was income that is subject to tax. Form 1099-K is an informational document. You should use the information reported on  Form 1099-K in conjunction with your other records to determine whether it’s taxable income and to determine your correct tax. Here are four examples:

  1.  Mike works part-time as an independent driver for hire, and, over the course of a year, receives income of $9,789 via a third party payment prossessor. The $9,789 should be included when calculating gross receipts for his income tax return.  He may be able to deduct certain business expenses when determining the amount of tax due. 
  2. Meghan 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.
  3. Mario, a full-time accountant, also has a hobby selling hand-painted holiday decorations on an auction site.  He sells $3,268 worth of decorations over the course of the year. That $3,268 amount should be included when calculating gross receipts for his income tax return. He may be able to deduct certain expenses when determining the amount of tax due. 
  4. Molly 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.

Additional questions?

Call Center:

  • (617) 887-6367 (Personal Income)
    • (800) 392-6089 (toll-free in Massachusetts)

 

Page updated: November 25, 2020.

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