The 1099-K threshold everyone reported does not apply to your merchant account

The One Big Beautiful Bill Act, signed on 4 July 2025, restored the Form 1099-K reporting threshold to more than $20,000 and more than 200 transactions, undoing the $600 threshold that the American Rescue Plan Act had set in 2021 and that the IRS then postponed for several filing seasons. Section 70432 of the Act applies the restoration as if it had been included in the 2021 legislation, which makes it retroactive to 2022. The IRS states the position plainly: third party settlement organisations are not required to file Forms 1099-K unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200.

That was reported, correctly, as relief for casual sellers on payment apps and marketplaces. It was then reported, incorrectly and almost everywhere, as relief for small businesses generally. If you run card volume through a merchant account, the threshold that came back is not a threshold you were ever under.

The de minimis exception has always been a TPSO exception

The Instructions for Form 1099-K, revised December 2026, put the rule in one sentence and one place. Under the heading Exception for de minimis payments, the instructions say a third party settlement organisation is required to report third party network transactions of a participating payee only if, for the calendar year, the gross amount of total reportable payment transactions exceeds $20,000 and the total number of such transactions exceeds 200.

A TPSO is what settles a third party network transaction: a payment app, an online marketplace, a platform paying out to sellers it does not have a direct card acquiring relationship with. The exception is written for that entity and no other.

For payment card transactions there is no equivalent. The instructions require every payment settlement entity that submits instructions to transfer funds to a participating payee's account, in settlement of reportable payment transactions, to file a Form 1099-K for that payee. There is no floor written into it. One card sale is reportable. The instructions make the point explicitly elsewhere, noting that in determining whether payments fall under section 6050W rather than the ordinary information reporting sections, the de minimis threshold is disregarded.

In practice the line is blurrier than the statute, because one company can sit on both sides of it. Card volume settled under an acquiring relationship — the interchange-plus merchant account that providers such as Helcim sell — carries no threshold at all. Platforms that settle sellers as a third party network describe applying the exception: Stripe's own support documentation states the test as more than $20,000 in total gross volume and more than 200 transactions, with both conditions required. If you are not certain which arrangement you have with Square, PayPal or Shopify Payments, that is a question worth asking before January rather than after a form arrives you were not expecting.

Box 1a is gross, and gross is the number that gets matched

The most common panic this form causes has nothing to do with thresholds. A merchant with $412,000 in deposits opens a 1099-K reporting $438,000 and assumes somebody has made a mistake.

Nobody has. The instructions define the gross amount in box 1a as the total dollar amount of reportable payment transactions without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, shipping amounts, or any other amounts. Every processing fee you paid, every refund you issued, every chargeback you lost and every shipping charge you collected and passed on is inside that number. The IRS is explicit that these are not taxable income and that you deduct them from the gross amount — but you have to do the deducting, on your return, from your own records.

Which is the practical argument for reconciling monthly rather than in April. Boxes 5a through 5l carry the gross figure for each month of the year, so a mismatch can be isolated to the month it happened in. Doing that requires knowing what your processor actually charged you, which is a separate skill and one worth acquiring: our guide to reading a merchant processing statement walks through where the fees hide. Chargebacks are the other reliable source of variance, and a business already inside a network monitoring programme will see the gap widen.

Two new boxes on the December 2026 form

The revision of the form that governs the coming filing season adds two fields that have had almost no coverage, and they land squarely on tipped businesses.

• Box 1c, cash tips. The total amount of cash tips included in box 1a. The instructions attribute the new box directly to section 70201 of Public Law 119-21 — the tip provisions of the same Act that restored the threshold.
• Box 1d, Treasury Tipped Occupation Codes. Up to two codes identifying the occupations in which the tips were received. Where tips were earned across more than two occupations, two of them are entered; where any were received in a nonqualifying occupation, 000 must be entered as one of the codes.

For a restaurant, a salon or any business where tips flow through the point of sale, this means the tip data your system captures is now feeding a federal information return rather than only your payroll. That is a reason to check how your platform categorises tips and service charges before the year closes rather than in February — a question for whoever supports your Toast or equivalent installation, not for your accountant in the spring.

The states did not follow Congress

The federal threshold moved. Several state thresholds did not, and they were already lower.

Massachusetts requires a third party settlement organisation to report the gross amount paid in settlement to a payee with a Massachusetts address when that amount is $600 or greater in a calendar year, regardless of the number of transactions between the organisation and the payee — a rule the state itself describes as differing from the federal one. Virginia's Department of Taxation requires third party settlement organisations to submit Form 1099-K information for payments of $600 or more to a Virginia payee, and tells taxpayers directly that they may be receiving a form for the first time because the state threshold is lower than the federal one.

The consequence is mundane and worth planning for: a seller with $4,000 of volume in one of those states gets a form, a seller with the same volume elsewhere does not, and neither outcome tells you anything about whether the income is taxable. It always was.

What to do before the year closes

1. Confirm the legal name and taxpayer identification number on every processing account match your IRS records. A mismatch exposes box 1a payments to backup withholding under section 3406, reported in box 4, and unwinding that costs far more time than checking it does.
2. Reconcile gross card volume to your books monthly, using boxes 5a through 5l as the reference points when the forms arrive.
3. Identify which of your payment relationships are acquiring relationships and which are platform settlements. That single distinction determines whether a threshold applies to you at all.
4. If you take tips, check how your point of sale classifies tips against service charges, and whether the figure it reports as tips is the one you would want in box 1c.
5. Check the merchant category code your processor has assigned you. It appears in box 2 of the form, and an MCC that does not match what you actually sell causes problems well beyond tax season, including in how your transactions are priced and screened.

None of this changes what you owe. The 1099-K has never been an assessment; it is a match. The value in reading it properly is that the number the IRS holds and the number in your books agree before anyone asks why they do not.