The Internal Revenue Service (IRS) requires entities called “third-party settlement organizations” to report on certain payments transacted over a calendar year through their networks. At the beginning of each year, Dwolla sends a Form 1099-K to each user in our system that receives more than 200 payments that total more than $20,000 during the previous calendar year.
Many states also require that third-party settlement organizations file 1099-Ks with the state taxing authorities but the reporting thresholds are exactly the same as the federal threshold. In 2019, the following states/territory passed legislation that significantly lowered the reporting threshold as shown below:
- Vermont - $600 USD in gross payments within a calendar year
- Massachusetts - $600 USD in gross payments within a calendar year
- Mississippi - $600 USD in gross payments within a calendar year
- District of Columbia - $600 USD in gross payments within a calendar year
- New Jersey - $1,000 USD in gross payments within a calendar year
- Missouri - $1,200 USD in gross payments within a calendar year
- Arkansas - $2,500 USD in gross payments within a calendar year
*The reporting threshold in each of the above states/territory is irrespective of the number of transactions.
Both the federal and state Form 1099-Ks 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 (bank statements, invoices, etc.) to report taxable income, if any. Please consult your tax advisor to determine your tax reporting requirements.
If you have received a Form 1099-K, it is based on your activity with one or more of Dwolla’s customers that uses the Dwolla Platform to process their payments.
This blog post has more information on a Form 1099-K.