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 was housing reform. But as with many large bills, unrelated provisions were added to the final bill - including new information-reporting rules for third party settlement organizations (TPSOs) to begin reporting certain payment transactions to the IRS on Form 1099-K beginning in early 2012 for the 2011 tax year.
The American Rescue Plan of 2021 (ARPA) introduced the first significant changes to the reporting requirements since the law was passed, lowering the reporting threshold from $20,000 and more than 200 transactions to a single $600 aggregate threshold. Because that change proved hard to implement in practice, the IRS designated multiple “transition years” and for calendar year 2023 transactions, effectively allowed TPSOs to continue using the prior $20,000 / 200 transaction standard without facing penalties, even though ARPA’s $600 threshold remained on the books.
Congress has now stepped in again. The One, Big, Beautiful Bill Act of 2025 (OBBBA) retroactively restores the original Form 1099-K threshold for TPSOs: a Form 1099-K is required only when a payee has more than $20,000 in gross reportable payments from more than 200 transactions in a calendar year. Earlier IRS guidance (Notice 2024-85) would have phased in much lower thresholds - $5,000 for 2024, $2,500 for 2025 and $600 thereafter - but those transition thresholds have effectively been overridden by OBBBA’s return to the pre-APRA $20,000 / 200 transaction standard.
States also have 1099-K Requirements
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 2025 tax year, the federal threshold for reporting is more than $20,000 in payments and more than 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, a Dwolla Client, pays out independent contractors utilizing the Dwolla network. 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, a Dwolla client, 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 ABC Property Management 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) totaling $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, taxable 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.