**Updated 12/4/2023 to reflect the revised IRS reporting threshold for the 2023 tax year.
To say the internet has changed how businesses interact with individuals—whether as consumers, independent contractors or by facilitating interactions between individuals—is an understatement. Payment platforms, like Dwolla, help businesses simplify payments.
As the landscape of payments has changed, both the Internal Revenue Service (IRS) and state legislatures have taken notice and implemented reporting requirements for credit card and payment companies to capture this data and encourage voluntary tax compliance
Topics covered in this article:
- What is the 1099-K used for?
- Who must file a 1099-K?
- I or my users received a Form 1099-K from Dwolla. Now what?
What is the 1099-K used for?
The primary purpose of the Housing Tax Assistance Tax Act of 2008 is to provide housing reform. But as with many laws, other requirements were added to the final bill—including the requirement for credit card and third party settlement organizations (TPSO) to report certain payments to the IRS beginning in early 2012 for the 2011 tax year.
The American Rescue Plan of 2021 introduced the first significant changes to reporting requirements since the law was passed, lowering the reporting threshold from $20,000 to $600. On November 21, 2023, the IRS announced that they would use the 2023 tax year as another transition year for the threshold change. For the 2023 tax year, the previous thresholds apply ($20,000 in payments from over 200 transactions).
Beginning in tax year 2024, if an organization or individual receives payment for goods and services of $5,000 or more through a third-party payment network, the payment network will report that organization’s or individual’s income on form 1099-K. The $5,000 threshold is aggregate and does not depend on the number of payments received.
States are Starting to Take Notice
Many states also require that TPSOs file 1099-Ks with the state taxing authorities.
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Who must file a 1099-K?
Dwolla issues 1099-K forms for transactions within our network that exceed certain federal or state reporting thresholds. For the 2023 tax year, the federal threshold for reporting is $20,000 in payments from over 200 transactions.
If you received a Form 1099-K, it’s based on your activity with one or more of Dwolla’s clients that uses the Dwolla Platform to process their payments.
Here are a few examples of who would file a 1099-K:
Users Receiving Payments
Acme Company pays out independent contractors. Independent contractor Mary earned $40,000 from 215 transactions over the course of the year. Mary would receive a Form 1099-K directly from Dwolla. Acme Company would not receive a Form 1099-K for the payments it sent to Mary.
Users Sending Payments
The XYZ Company sells widgets to consumers and collects payments via Dwolla. Over the course of the year, the company earned $500,000 from 3,000 transactions. The XYZ Company would receive a Form 1099-K from Dwolla. The consumers who purchased the widgets would not receive a Form 1099-K for their payments through Dwolla.
Businesses Facilitating Payments Between Users
ABC Property Management facilitates rental agreements and rent payments between landlords and tenants. Landlord A had 20 properties that were rented for $1,000 per month and used the property management platform for the entire calendar year.
At the end of the calendar year the landlord would receive a Form 1099-K from Dwolla reporting 240 gross payments received (20 properties x 12 months of rent each) totalling $240,000. The individual tenants would not receive a Form 1099-K as they sent, rather than received, the payments.
What do I do if I or my end users received a Form 1099-K?
Both the federal and state Form 1099-Ks are information returns and the gross payments reported on a Form 1099-K do not necessarily represent reportable income. The form should be used in conjunction with other tax records (bank statements, invoices, etc.) to determine you or your users’ taxable income.
The only tax form issued by Dwolla to users on our platform is the Form 1099-K.
Please consult your tax advisor to determine whether any additional tax reporting may be required of your specific business model.
The federal and state Form 1099-K are provided to the IRS to report certain payments that are sent or received from third-party settlement organizations. This form should be used in conjunction with other tax records to report if any of the payments qualify as taxable income.
Please consult your tax advisor to determine your tax reporting requirements. If you have additional questions specific to your account with Dwolla, please reach out to support@dwolla.com.