FAQ for Form 1099-K Reporting – 2021 #
1. What is a Form 1099-K?
Form 1099-K is an IRS information return that is used to report certain payment transactions from third-party processors.
2. Why are some Race Directors receiving a 1099-K for the first time this year?
The IRS has changed the threshold limit for transaction reporting for Third Party Settlement Organizations, which are required to report on Form 1099-K any payment transactions in excess of $600 per year.
3. How is the 1099-K different from a 1099-MISC or 1099-NEC?
Prior to the implementation of the 1099-K, organizations were issuing 1099-MISC (and most recently Form 1099-NEC) to all vendors with whom they were doing business with. However, with the increased use of credit cards and third-party processors, the IRS created a filing requirement for credit card companies and third-party processors to report those payments on Form 1099-K. The main difference between these forms is that Form 1099-NEC reports payment to independent contractors, while 1099-K is limited to reporting payments by a third party. Furthermore, information reported on Form 1099-K should not be reported on Form 1099-NEC, essentially doubling the income reported to the IRS.
4. What should you do with 1099-K information?
Individuals and businesses need to use 1099-K information to correctly report gross income on their corresponding income tax filings. Although your business income may include payments with checks and/or cash, generally you should consider gross amounts reported on Form 1099-K along with other amounts received when calculating gross receipts for income tax purposes.
5. Why there may be discrepancies in timing of payments reported on Form 1099-K versus actual cash receipt?
There may be a delay in the payment settlement date when UltraSignup processes the payment vs. when Race Directors receive it in their bank account. This typically happens on settlement dates that are at the end of the month, which sometimes (depending on the day of the week) causes recipients of the funds have a different month for the deposit vs. what’s being reported on Form 1099-K. This informational reporting is primarily used by the IRS to match the gross amounts reported in box 1a against the individual or business tax return filed by the recipient.
6. What does the number of Payment Transactions include and how was it calculated?
To facilitate electronic filings with the IRS, the number of payment transactions field must have a number greater than zero. Since all of the 1099-K reporting requirements for UltraSignup are driven by the gross amount reported and number of transactions threshold no longer applies, UltraSignup uses a number of transactions that is equal to the total number of months that included amounts greater than zero as the number of payment transactions in box 3.