Form 1099-K for merchants: what your processor reports

Form 1099-K is the IRS information return that reports the gross amount of card payments and third-party network payments a business received during a calendar year. If you accept cards, the company that settles your card sales into your bank account files the form with the IRS and sends you a copy. For card payments there's no minimum: one card sale is enough to put you on a 1099-K.

The form trips up merchants for one reason. It reports gross sales, the full amount customers charged, before processing fees, refunds, and chargebacks come out. Your bank deposits are smaller, sometimes by thousands of dollars, and that gap has to be explained in your books. This guide covers who sends the form, what each box means, the thresholds as of October 2026, and how to reconcile it to your deposits.

What is Form 1099-K, and who sends it?

The 1099-K is filed by the payment settlement entity, the company that sends the instructions to move your card money into your bank account. The IRS says that entity is the one that reports your payment card transactions on the form.

In practice, who that is depends on how you take cards:

The middle rows are why some merchants get two or three forms. A shop with a merchant account in store and a payfac for online orders can expect a form from each. Our guide to payment facilitators vs merchant accounts explains the difference between the two setups.

What are the 1099-K reporting thresholds?

Card payments and third-party network payments follow different rules, and the second set has changed more than once. Here's where things stand for tax years 2025 and 2026, as of October 2026:

For card payments, the IRS puts it plainly: there's no threshold amount for payment card transactions, and if you received $0.01 from one, you should get a Form 1099-K for it.

The third-party network threshold is the one that moved. The IRS says the One, Big, Beautiful Bill retroactively reinstated the threshold that applied before the American Rescue Plan Act of 2021: more than $20,000 in payments and more than 200 transactions. The IRS instructions for Form 1099-K carry the same $20,000 and 200-transaction test. If you've seen lower figures quoted for payment apps, they date from before the reinstatement.

Two caveats from the IRS. A platform may still send a 1099-K for amounts below the federal threshold, and your state may have a lower reporting threshold of its own. Neither changes what you owe: the IRS reminds sellers that if you receive payments for goods or services, you must report all of that income, whether or not a form arrives.

What does each box on Form 1099-K mean?

Most merchants only need a handful of boxes. Here's what they show, based on the IRS instructions and its guidance on what to do with the form:

Box 1a is the one that matters most. The IRS says the gross amount doesn't include adjustments for fees, credits, or refunds, so a sale you later refunded still counts in full. If you charge sales tax, it's part of each card payment, so it's in there too.

Box 2 deserves a look every year. The IRS instructions tell filers to enter the four-digit code the card industry uses to classify the payee, and a wrong code can also mean wrong interchange rates. Our guide to the merchant category code explains how to fix one.

Why doesn't my 1099-K match my bank deposits?

Because the form counts what customers charged, and your bank counts what you received. Everything that comes out between the two, and anything that lands in a different year, shows up as a gap.

Say a bike shop in Boise gets a 1099-K showing $486,200.00 in box 1a, and its processor deposits sales daily, net of fees. Here's how the shop's bookkeeper ties the form to the bank:

The gap is $21,210.00, and every dollar of it has a reason. Nothing is wrong with the form. What would be wrong is reporting the $464,990.00 as sales, or reporting $486,200.00 without the offsets.

The common causes of a gap, in rough order of size:

1. Processing fees, if your processor deposits net of fees. If it bills fees once a month instead, they won't show in deposits, but they'll show as a separate debit.
2. Refunds back to cards.
3. Chargebacks and reversals.
4. Timing at each end of the year.
5. Sales tax and card tips, which are part of what customers charged.
6. A second form you forgot about, from another processor, location, or platform.

Our guide on how to read a merchant statement shows where each of these lines sits on a typical statement, and how long card payments take explains the timing.

How do you check your 1099-K before you file?

Check it the week it arrives, not the week your return is due. Here's a 20-minute routine:

1. Confirm your business name and taxpayer ID match your records.
2. Compare boxes 5a through 5l with the gross sales line on each monthly statement. A month that's off by a lot is easier to chase than a year.
3. Add up the twelve months and confirm they equal box 1a.
4. Check box 2. If the code describes a business you don't run, call your processor.
5. Look at box 1b. If it shows keyed or online sales you didn't expect, ask why cards are being keyed.
6. Count your forms. If you have more than one merchant account, location, or platform, make sure every form has arrived and is in your totals.

A café group with one store in Omaha and another in Lincoln, each on its own merchant account, should check that it has a form covering each store, and that its books show both.

What happens to your 1099-K if you switch processors mid-year?

You'll get a form from each company, because each one reports the payments it settled. The old processor's form covers the months before the switch, and the new one covers the months after. Neither form shows your full year on its own.

Say you moved on July 1. Boxes 5a through 5f should carry figures on the old form and sit at zero on the new one, with the reverse for 5g through 5l. If the same month carries full figures on both forms, something was counted twice, and that's worth a call. If a month you were open shows up on neither, a form may be missing.

One practical tip: download every statement from the old processor before you close the account. Logins don't always outlast the relationship, and you'll want those statements when the form arrives in January. If you're weighing a switch, our pricing page explains how interchange-plus statements break out each fee, and our page on payment processing for small businesses covers funding and support.

What should you do if your 1099-K is wrong?

Contact the company that filed it. The IRS says to contact the filer whose name and contact details appear in the upper left corner and, if necessary, ask for a corrected Form 1099-K. If you don't recognize the filer, contact the payment settlement entity shown in the bottom left corner, above your account number.

Don't call the IRS to fix it. The IRS says it can't correct your Form 1099-K. Keep a copy of the corrected form with your records, along with your correspondence with the filer.

Be sure the form is actually wrong first. A box 1a higher than your deposits is normal, as the reconciliation above shows. Real errors look different: sales from a business that isn't yours, a wrong taxpayer ID, a month counted twice, or sales that belong to someone else, like booth renters running their sales through your terminal. Our guide to salon credit card processing covers that booth-renter problem.

How do you report 1099-K income on your tax return?

Start from the gross, then subtract what belongs to you. On the same page, the IRS says self-employed people are considered sole proprietors and should report Form 1099-K payment information on Schedule C, including the full gross amount and then making the appropriate offsets so that only taxable income remains. If your business is a partnership or corporation, your accountant will show you where the figures go on its return.

The offsets are where processing fees come in. Fees aren't taken out of box 1a, so they appear as a business expense instead. Our companion guide, are credit card processing fees tax deductible?, covers how the IRS and CRA describe deductible business expenses, and your accountant will confirm how yours are treated.

When does the form arrive? The IRS general instructions list January 31 as the date the filer must furnish your copy of Form 1099-K. Keep it with the year's statements. The IRS says you should generally keep records that support income on a return until the period of limitations runs out, generally 3 years from the date you filed.

Common 1099-K mistakes merchants make

• Reporting bank deposits as sales. Deposits are net; the 1099-K is gross.
• Forgetting a second form from an online platform or a second location.
• Ignoring box 2 until the merchant category code causes a problem.
• Letting staff key cards that could have been tapped, which shows up in box 1b and in your interchange costs.
• Throwing out monthly statements. They're the only way to explain the gap.
• Asking the IRS to correct the form instead of the filer.
• Assuming a payment app won't send a form, or that no form means no income to report.

When is the 1099-K not worth worrying about?

If you reconcile monthly, the form is a non-event. Your books already show gross sales, refunds, chargebacks, and fees, so the 1099-K just confirms the first number. The merchants who dread it are the ones who first look at a full year of card sales in February.

The rules for payment card reporting come from the IRS, so they apply the same way for merchants across the United States. If you're comparing merchant services providers, ask each one which entity files your 1099-K and how its statements show monthly gross sales.

Next step

A clean 1099-K starts with statements you can read. Send us a recent statement for a free statement review and we'll walk you through your gross sales, fees, and deposits line by line, and show you what you're paying in credit card processing fees. Or contact us to talk through how statements and year-end reporting work with a dedicated rep.