If you are a Shopify business owner using Shopify Payments to accept online customer payments, you may receive Form 1099-K from Shopify.
Note that sellers selling goods or services through an online marketplace or using any payment apps or payment cards to receive payments may receive Form 1099-K from such an online marketplace, payment app, or payment card provider respectively.
That’s because such online marketplaces, payment apps, or payment card providers are required to file Form 1099-K with the IRS to report the payments they made to the sellers for selling goods or services through the online marketplace, or the payment app or the payment card users receiving payments through the app or the card. Provided such payments exceed the minimum threshold the IRS sets for reporting taxes.
Thus, it’s crucial for sellers selling goods or services on online marketplaces or the payees receiving payments through payment apps or payment cards to complete Form 1099-K they received from the respective entity for tax reporting purposes
Likewise, Shopify is required to submit Form 1099-K form to the IRS on behalf of the online sellers using Shopify Payments to accept online payments. Provided such payments exceed the minimum threshold the IRS sets for reporting taxes.
In this article, we will explain to you in detail what is Form 1099-K, where is 1099-K on Shopify, and how to file Form 1099-K.
1099 K Meaning
Form 1099-K is a Payment Card and Third Party Network Transactions information return. Such a return is used by payment card companies and payment apps or online marketplaces (also called third-party payment networks) to report to the IRS the gross amount of reportable transactions undertaken by them for the calendar year.
Note that third-party payment networks like payment apps or online marketplaces have the contractual obligation to make payments to merchants or businesses (also called participating payees) of third-party network transactions.
Accordingly, Shopify Payments, a payment app, has the contractual obligation to make payments to Shopify store owners who are using the app to accept payments online from the purchasers of its products or services. Thus, the Shopify store owners are the participating payees. These payees accept payments made by the Shopify Payments app to settle the transaction the purchasers made on the Shopify store as a result of purchasing goods or services from the store.
Thus, Shopify is required to file Form 1099-K to the IRS to report the gross reportable transactions of the Shopify store owners to whom they make payments. Provided the Shopify store owners have gross reportable transactions of more than $600, irrespective of the number of transactions.
What is A Third-Party Payment Network?
As per IRS, for an entity to be a third-party payment network, it must satisfy certain conditions. These include:
- There must exist a central organization with whom a substantial number of goods and services providers, unrelated to the central organization, have established accounts.
- There must exist an agreement between the central organization and the goods or services providers to settle transactions between the providers and purchasers.
- The standards and mechanisms for settling such transactions are established.
- There exists a guarantee of payment in the settlement of such transactions.
If all the above conditions are satisfied, then an entity is a third-party network. Keeping this into consideration, Shopify Payments is a third-party payment network:
- Shopify is the central organization with whom a substantial number of goods and services providers, unrelated to Shopify, have established accounts.
- There exists an agreement between Shopify and the goods and services providers to settle transactions between the providers and purchasers of goods and services.
- The standards and mechanisms for settling such transactions are established.
- Shopify Payments guarantees payment to settle such transactions.
What Does Form 1099-K Include?
Form 1099-K is a form that includes the details about the payee using Shopify Payments. These details must match the information used when the payee (individual or business) had set up the Shopify Payments Gateway initially.
The Form 1099-K includes the following details of the payee:
- The address which is either the name of the payee or the business attached to the account
- TIN (either EIN or SSN)
- Gross Amount of Payment Card/Third-Party Network Transactions (Month-Wise). Note that the Gross Amount of Payment does not include adjustments for fees, credits, refunds, shipping, cash equivalents or discounts. That’s because all these items are not income. You can deduct them from the gross amount.
Does Shopify Give You a 1099?
Shopify will send you Form 1099-K only if you are using Shopify Payments as a method to accept online payments. That is, Shopify submits Form 1099-K to the ORS on behalf of the Shopify store owners only if such store owners are using Shopify Payments.
Besides using Shopify Payments as a method to accept online payments, the Shopify store owners must also satisfy the following requirements in order to receive Form 1099-K from Shopify:
- You must receive more than 20,000 USD in gross payments and have more than 200 transactions for calendar years prior to the tax year.
- You must receive more than 600 USD in gross payments and have any number of transactions for the tax year and later.
- You must meet your state’s individual thresholds.
In case you do not meet the above requirements, you will not receive Form 1099-K from Shopify.
Where is the 1099-K on Shopify?
To access your Form 1099-K on Shopify, you need to follow the steps below:
- Type your Shopify Store’s URL along with the word “admin” to log in to your account.
- Once you log in, select the ‘Finances’ tab on the left bar of your admin page. Once you select ‘Finances’, then select the ‘Payouts’ option from the dropdown menu that opens beneath the ‘Payouts’.
- Once you click on ‘Payouts’, your screen will display the payouts that you received from Shopify in your bank account. On the top right corner, you will see three tabs: Export, Documents, and Transactions. Click on the ‘Documents’ tab.
- Once you click on the ‘Documents’ tab, Shopify will display a list of your tax documents. You click the ‘Download’ button to download the PDF format of your Form 1099-K.
In case you do not see Form 1099-K form under Documents after logging into your account, then one possibility can be that you do not qualify for Form 1099-K. But, if you are sure that you qualify for the firm but do not find one in the Documents section, then follow the steps below:
- ‘Finances’ tab on the left bar of your admin page. Once you select ‘Finances’, then select the ‘Payouts’ option from the dropdown menu that opens beneath the ‘Payouts’.
- Once you click on ‘Payouts’, your screen will display the payouts that you received from Shopify in your bank account. On the top right corner, you will see three tabs: Export, Documents, and Transactions. Click on the ‘Transactions’ tab.
- From here, you need to export your transactions by date. You can download the transactions for the entire tax year from January to December.
- Once you export or download the transactions, sort your transactions based on column H which is under the head ‘Available On’. Note that this is the date when the money actually changed hands from the customer’s bank to your processing account. This is the date that Shopify uses for tax purposes. Once you sort the spreadsheet, don’t forget to delete any rows with an ‘Available on’ date of either the year prior to the tax year or the year after the tax year.
- Next, sort your spreadsheet by column B under the head ‘Type’ and remove any rows with a ‘Type’ listed as anything other than ‘Charge’. By doing this, you will delete any rows with a ‘Type’ that is listed as Refund, Adjustment, Chargeback, etc. Note that Form 1099-K only reports gross processing. Therefore, it does not include adjustments for fees, credits, refunds, shipping, cash equivalents, or discounts.
- Once you do this, your spreadsheet will have only transactions with a ‘Type’ listed as ‘Charge’ and an ‘Available on’ date of the tax year.
- Finally, you need to calculate the sum of column I under the head ‘Amount’. The resulting amount will correspond to the amount which would have been reported on your 1099-K in case you qualified for it. Further, when you deduct the heading row from the number of rows in the export, you will get the number of transactions.
Does Shopify Report to IRS?
Yes, Shopify needs to report the reports gross payments made to the merchants to the IRS. As per IRS, the merchant acquirers and the third-party settlement organizations must report the proceeds of payment card and third-party network transactions made to the merchants on Form 1099-K under Internal Revenue Code section 6050W.
Shopify, as the third-party settlement organization must report the payments made to the merchants through Shopify Payments to the IRS through Form 1099-K.
Thus, Shopify merchants who received any proceeds through Shopify Payments over $600 are required to complete Form 1099-K they received from Shopify. Remember, Shopify doesn’t file or remit sales taxes for any of the merchants. It is the duty of the merchants to register their business with the local or federal tax authority to handle their sales tax.
How to Get Shopify Tax Documents?
If you are a Shopify store owner receiving $600 or more using Shopify Payments on your Shopify store, you qualify for the 1099-K threshold set by the IRS. Accordingly, Shopify will send you a copy of your 1099-K form which you can access through your Shopify admin.
Here are the steps you need to follow to access your IRS 1099-K 2023:
- Login into Your Shopify Account
- Type the URL of your website in the Google address bar, type ‘/admin’ at the end, and type ‘enter’. This will take you to your ‘Shopify Login Page’. You can also log in to your Shopify Store by visiting www.shopify.com and clicking ‘Log in’ on the top right corner. You’ll be directed to the same login screen as below.
- Type your Shopify email id that you used to sign up for your Shopify store and click ‘Continue with Email’.
- Now type your password and click ‘Log in’.
- If you had activated 2-factor authentication (2FA) for your Shopify Store, you’ll receive an authentication code for extra security on your registered mobile number or email id. This will depend on the choice you initially made when setting up 2FA.
- Once you enter the 2FA code, press ‘Log in’.
- Now, choose your Shopify Account and get access to your Shopify Admin.
- Click on ‘Finances’ in the Side Bar
Select the ‘Finances’ option from the sidebar to open the dropdown.
- Click on ‘Payments’
Click on ‘Payments’ and you’ll see the history of all the payments that you have received for all purchase transactions on your Shopify Store.
- Click on ‘Documents’ in the Upper Right Corner of the ‘Payments Page’
Click on ‘Documents’ in the upper right corner to get access to your IRS 1099-K form. Remember, you’ll see this form only if you are a Shopify store owner who qualifies for the 1099-K threshold set by the IRS. You can download your Shopify 1099-K form from here and use it to file your individual federal income tax returns.
1099 K Reporting Requirements
Who Should File 1099-K?
The IRS requires payment card companies, online marketplaces, and payment apps to file form 1099-K to the IRS if the store owners cross the payments threshold set by the IRS. The 1099-K threshold set by the IRS is $600 or more of payments received by the store owner for goods and services with a payment app, online marketplace, or payment cards. Additionally, these payment companies and online marketplaces must send a copy of Form 1099-K to the taxpayers by January 31.
Accordingly, if you are a Shopify Store owner using ‘Shopify Payments’ to receive payments for goods and services, and if the amount of gross payments you receive for goods and services is $600 or more, Shopify (as a payment settlement) is bound to send you an IRS 1099-K form.
Needless to say, Shopify being the third-party payment network is bound to file a 1099-K with the IRS on your behalf and send a copy of your Shopify 1099-K to you by January 31. Thus, you don’t file a 1099-K with the IRS but simply use your copy of the 1099-K to figure out your correct income and file your federal income tax return with the IRS.
Please note that the IRS lowered the reporting threshold for third-party settlement organizations to $600 from 2023 onwards.
Who Receives 1099-K?
Entities in the following circumstances must receive a 1099-K as per the IRS:
- Anyone receiving payments with the payment cards including debit, credit, and stored value or gift cards.
- Anyone receiving payments of $600 or more with a payment app or online marketplace
Accordingly, you qualify to receive Shopify 1099-K if you meet the 1099-K threshold of gross payments of $600 or more for goods and services. Shopify will send you a copy of the 1099-K after filing it with the IRS.
What Should You Do With Your Shopify 1099-K?
As mentioned earlier, you are receiving IRS 1099-K because you meet the 1099-K threshold set by the IRS. You may think that Shopify has already filed the 1099-K on your behalf, what should you do with your Shopify 1099-K? In other words, what is the use of your Shopify 1099-K?
- Cross-check Your Gross Payment Amount With Your Records
Use your Shopify 1099-K to ensure that the gross payment amount as appearing in box 1a in the form 1099-K. This is the gross amount of payment made to you for goods and services through the Payment Settlement Entity (PSE; Shopify in this case). It does not include expenses such as fees, credits, shipping, refunds, etc as these are not your income. You can deduct these expenses from the gross payments and match them with your records to ensure that the gross amount is correct for tax purposes.
- Use 1099-K for Reporting Your Income
Use the 1099-K to see how you will report the 1099-K payments on your tax returns. Your income tax returns will declare payments reflected in 1099-K and other reporting documents such as 1099-NEC and 1099-MISC. Since you receive these payments by selling goods, services, or renting a property, you will show 1099-K payments as follows in your tax returns:
|In Case of Payments Received By||Payments Will Appear in Form|
|Sole Proprietor||Form 1040, Schedule C 1040|
|Partnership||Form 1040, Schedule E 1040|
|Corporation||Form 1120 U.S. Corporation Income Tax Return, or Form 1120-S U.S. Income Tax Return for S Corporation|
|In Case of Payments Received Via||Payments Will Appear in Form|
|Rental Income||1040 Schedule C or 1040 Schedule E based on the type of business structure you choose|
- Check 1099-K for Errors or Incorrect Information
If You Have Received the Form in Error
As a Shopify store owner, there may be situations when you would get Form 1099-K in error. This could be the case if the form:
- reports payments that were gifts or reimbursements from family or friends
- doesn’t belong to you or is a duplicate
In such situations, you must:
- get in touch with the issuer of the form (Shopify in this case)
- keep with yourself a copy of the original form and all the communication between you and the filer
If The Form 1099-K is Incorrect
You form 1099-K may have incorrect information with regards to:
- Taxpayer Identification Number (TIN)
- Number of payment transactions
- Merchant Category Code
- Third-party network transactions/ Gross amount of payment