In these tough and evolving economic times, the number of people making money online continues to increase, and with governments innate ability to be a killjoy, the 1099-K has now been introduced . For the most part, the 1099-K was meant to ensure that income made from power sellers on sites like eBay is properly reported. The 1099-K is issued by third party payment processors, including banks and non-bank services like PayPal.

If you work online and your transactions are processed through PayPal, this will be reflected on the 1099-K issued by PayPal. If you sell through Amazon, and Amazon processes the transactions, you will be issued a 1099-K from Amazon.

Banks that also process transactions through a merchant account or some other way will also issue you a 1099-K, stating your income from such transactions. In order to be issued a 1099-K though, you will have to have participated in at least 200 transactions amounting to at least $20,000 over the course of the year.

The IRS saw some under-reporting regarding certain transactions where a 1099-MISC might not be issued because the situation may not have been considered a contract situation.

Issues with 1099-K Reporting

While changing, many individuals receive their payments via PayPal, (or some similar method). So people can fully expect to receive a 1099-K from PayPal, the bank, and of course many clients will also issue a 1099-MISC. The problem with this is that a lot of income is going to be double reported to the IRS, making it look like you are a Steve Jobs reincarnate!

As the IRS gets a copy of all these duplicated 1099's, you will need to protect yourself in the event of an audit by cross-referencing and providing the details to your accountant. Did I mention that this will provide a steady revenue stream for accountants and bookkeepers? Consolation is that these expenses can be deducted against your income. (Audits have increased dramatically under the Obama administration)

Even if you don't receive a 1099-K, you'll still have to report your income! Maybe the IRS never got the memo that it was Warren Buffet and Bill Gates demanding that the wealthy pay more taxes on their income!