If you're an employee then you probably know all about the Form W-2, but unless you've got yourself a side hustle like Amazon FBA, swing trading, or investment properties that bring in rental income, the concept of a Form 1099 might be foreign to you.
The Form 1099 K is just one form of a series of income tax forms issued by the Internal Revenue Service (IRS), and it will be the focus of this article.
By the end of this Amazon 1099k guide you know what purpose the form serves, why you need it and what you have to do with it.
What is a 1099-K?
A 1099-K is an IRS form used to report income received from payment card or third party network transactions, which includes ecommerce platforms like Amazon and eBay. It is a variation of the 1099 form and is not to be confused with the 1099-MISC form that Amazon also issues for interest and dividend earnings.
After the global financial crisis, the Housing and Economic Recovery Act of 2008 included new reporting requirements for banks and credit card merchants. The Act came into effect in 2011 and the 1099-K form was first issued shortly after in in 2012, in an effort to help combat tax fraud and evasion by online sellers and platforms.
Who Receives an Amazon 1099k?
For earnings before Jan 1 2023, Amazon will issue you a 1099-K if you have $20,000 or more in adjusted gross sales AND at least 200 transactions. You need to meet both of these criteria in order for Amazon to issue you a 1099-K.
New IRS Tax Reporting Rules - According to the new rules, 1099-K forms will be sent to all U.S.-based sellers who have transacted more than $600 in gross sales, with no minimum sales threshold applicable.
This is a new threshold that goes into effect for reporting earnings from Jan 1 2023 onward. For earnings before 2023, the earlier rule of $20,000 in income from at least 200 transactions will remain in effect.
What Are the Different Sections of the 1099-K and What Does Each Section Contain?
It can be daunting the first time you receive your 1099-K form from Amazon, so let's review some of the information it contains.
Here’s a quick look at what the different sections on the 1099-K form mean:
1a: Gross amount of payment card/third party network transactions - This is the total dollar amount that Amazon collected from your customers during the reporting year.
1b: Card Not Present transactions - For Amazon sellers the card is never present so this figure will be the same as what is shown in 1a.
2: Merchant category code - If you're an Amazon seller, this box will always be empty.
3: Number of payment transactions - This figure will usually be the same as your sales count however, some items in one order may get charged separately in which case, this number may not be entirely accurate.
4: Federal income tax withheld - This is generally always $0 unless you have something called backup withholding.
5a-5l: These boxes contain a monthly breakdown of the figure shown in box 1a.
6, 7, 8: State-related tax requirements for 1099-K.
The other information shown on the 1099-K is as follows:
- Taxpayer’s Name and Address (this is you)
- Taxpayer Identification Number (TIN)
- The Payment Settlement Entity’s (PSE) name (in this case, Amazon)
- PSE's Contact Information
For any further clarification of the form itself, I highly recommend you take a look at the understanding your form 1099-K section on the IRS website.
Why is the Amount on the 1099-K More Than What Amazon Transferred to my Bank Account?
If you've met the gross sales and volume criteria and Amazon sent you a 1099-K, you may have noticed that the amount reported on your 1099-K is more than the amount that Amazon transferred to your bank account. This is correct, don't fret!
This happens because the amount reported on the 1099-K is the total amount collected from your customer, including shipping and sales taxes.
Costs and expenses, such as the following, are not accounted for on the 1099-K:
- FBA shipping fees
- FBA storage fees
- Amazon referral fees
- Other selling related expenses charged by Amazon
The above mentioned costs are deducted from the total amount Amazon transfers to your bank account, but they are not reported on your 1099-K, so you will need to get details of all these expenses in order to balance your 1099-K.
How to Reconcile and Balance your 1099-K Tax Form
The first thing you should do is check the accuracy of the 1099-K from Amazon. There's always the possibility of a mistake being made.
What you also need to do is generate a Date Range Report from your Amazon seller central account. This will include vital information that you'll need to provide to your tax professional.
How to Generate a Date Range Report
Follow these steps inside your Amazon seller central account to generate a date range report:
- In the main menu, go to Reports > Payments
- Select the Date Range Reports tab
- Click the Generate Report button
- A box will pop up, choose Summary for your report type and set your desired custom date range.
- Click the Generate
The report make take a few minutes to generate.
Once the report has been generated, you will be able to access the following important figures from the Income and Sales Tax sections:
- Product sales (non-FBA)
- FBA product sales
- Shipping credits
- Gift wrap credits
- Promotional rebate refunds (this shows as a subtraction)
- Sales, shipping, and gift wrap tax collected (show in the Sales Tax section)
Now here's a magic trick. If you add up all of these 6 figures, they should equal the amount that is shown in section 1A on your 1099-K form. Voila!
All of the expenses shown on this report are crucial for your tax return, too.
Frequently Asked Questions
Most of the question you seek should have been answered in this article, but in case you missed anything here's a few of the most common Amazon 1099-K questions!
Does Amazon Send 1099k to IRS?
Yes, Amazon actually sends a copy of the 1099-K form to the IRS in addition to sending one to you, the taxpayer. IRS regulations require Amazon to do this, so it's just another way that the IRS can keep tabs on your income!
How do I Get my 1099k from Amazon?
You can download your 1099-K from inside your seller central account. Simply go to the main menu, Reports, then into the Tax Document Library. You'll find your 1099-K in there.
What Does Amazon 1099K include?
Apart from your tax information like your tax identification number and details about you and your entity, the 1099-K includes your gross sales amount, including sales tax, and gross transactions. It does not take into account your operating expenses or Amazon fees and charges.
When Does Amazon Issue a 1099-K Form?
Amazon's deadline to issue the 1099-K is January 31. Amazon will send the form to the address you provided to them in your tax interview. You can also opt to receive tax forms via email from Amazon.
If for some reason you did not receive your form in the mail, you can always go into your Amazon seller central account and go to the Reports section in the menu, then into the Tax Document Library.
Recommended Tax Tools and Resources for Amazon Sellers
Before we wrap this up I want to briefly touch on the different tools and resources that I personally use in my Amazon business, or have heard amazing things about from my fellow sellers.
I did an interview with Nathan from Ecombalance so if you're in need of an Amazon bookkeeping service, I highly recommend you check them out. They are super helpful when tax time comes around!
I use Quickbooks to manage all of my accounting needs. It's similar to other accounting software solutions like Xero and FreshBooks. Take a look at Quickbooks, I really like it, but by all means test out a few different options when choosing your bookkeeping system.
Tall Oak Advisors
Tall Oak Advisors can help with your bookkeeping needs, tax preparation, and even outsourced CFO (Chief Financial Officer) needs. I've known the owner for years and I highly recommend them. They have tons of ecommerce experience under their belts.
Bench provides a lot of services from bookkeeping through to tax filing. They have transparent and competitive pricing for their services so they are definitely worth considering.
Conclusion - Amazon 1099-K
Quite often, people forget that running an Amazon FBA business is just like any other business. And that means overheads, paperwork, and taxes.
One of the reasons that selling on Amazon is such a great business, however, is that you can do it from the comfort of your own home. If you're an online arbitrage seller, you don't even need to ever lay your hands on a product, either.
No matter how you operate your Amazon business, taxes are an absolute must and deciphering the 1099-K form is just one of the tasks that sellers must handle.