Form 1099-K - Merchant Card and Third-Party Network Payments

If you determine your online sales are an activity you have engaged in for profit, as an Online Auction Seller you are considered a self-employed taxpayer and must file Schedule C (Form 1040) Profit or Loss From Business. In this situation, you must report all your business income from these sales. Additionally, you may be able to claim a deduction for certain business expenses. If your net profit is above $400, you will be subject to self-employment taxes in addition to individual income taxes.

Due to the increasing volume of online sales, effective calendar years beginning after December 31, 2010, Form 1099-K Payment Card and Third Party Network Transactions must be issued by the Payment Settlement Entity (PSE) to the payee to report payments made in settlement of reportable payment transactions. Similar to a Form W-2 or 1099-MISC, this form will be issued to the taxpayer and the IRS by the issuer.

Per IRS Instructions for Form 1099-K, on page 3:

Who Must File.

Every PSE or other party which submits instructions to transfer funds to the account of a participating payee, in settlement of reportable payment transactions, must file an information return (Form 1099-K) with respect to each participating payee for that calendar year.

Please see the Form 1099-K instructions for an overview of the exceptions.

Note. If a PSE contracts with an electronic payment facilitator (EPF) or other third-party payer (TPP) to make payments in settlement of reportable payment transactions on behalf of the PSE, the facilitator or other third party must file Form 1099-K in lieu of the PSE.

To enter a Form 1099-K, go to our Form 1099-K – Payment Card and Third Party Network Transactions FAQ.

If you are not engaged in the activity for profit, then the activity may be considered a hobby. You may not claim hobby expenses, but must still report any income received. To enter the income from your hobby in TaxAct:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Other Income in the Federal Quick Q&A Topics menu to expand, then click Prizes, awards or other miscellaneous income.
  3. Continue with the interview process to enter all of the appropriate information.
  4. On the screen titled Miscellaneous - Amounts Received, enter the Hobby income amount, then click Continue.

The following links are for additional guidance as an Online Auction Seller:

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.