If you sell on online marketplaces, one tax rule is especially easy to misunderstand:

The federal Form 1099-K reporting threshold is not the same thing as a tax-free income threshold.

For 2026, third-party settlement organizations such as payment apps and online marketplaces are generally required to issue Form 1099-K when a seller receives more than $20,000 in gross payments and has more than 200 transactions through that reporting entity. The IRS says the older $20,000-and-200-transaction rule was restored by legislation enacted in 2025.

That sounds simple.

In practice, however, sellers need to understand several additional rules:

• Both the dollar threshold and transaction threshold generally must be exceeded for the federal TPSO reporting requirement.
• A marketplace can still send you a 1099-K below those thresholds.
• Some states have lower reporting thresholds.
• Direct credit- or debit-card payments are subject to different reporting rules.
• Form 1099-K reports gross payments, not profit.
• Fees, refunds, shipping expenses, product costs, and other expenses are not automatically subtracted from the amount shown.
• Business income does not become nontaxable simply because no 1099-K is issued.

For anyone selling regularly online, understanding those distinctions before tax season can prevent a great deal of confusion.

This article is for general educational purposes and is not individual tax advice.

What Is Form 1099-K?

Form 1099-K is an information return used to report certain payments received for goods and services through:

• online marketplaces
• payment apps
• credit cards
• debit cards
• stored-value cards
• other qualifying payment networks

The payment processor or marketplace sends a copy to the seller and another copy to the IRS. The IRS describes the form as a tool taxpayers should use together with their own records to determine the income they actually need to report.

For many resellers, the form may summarize thousands of marketplace transactions into one annual gross-payment number.

That number is useful—but it should not be confused with taxable profit.

What Is the Federal 1099-K Threshold for 2026?

For third-party settlement organizations, the federal reporting requirement generally applies when both of these conditions are met during the calendar year:

Gross payments exceed $20,000

and

The number of transactions exceeds 200

The current IRS 2026 instructions confirm that both tests apply to the federal de minimis exception for third-party network transactions.

The word both is important.

Example 1: $18,500 and 310 Transactions

A seller receives:

$18,500 in gross marketplace payments

across

310 transactions

The seller exceeded 200 transactions but did not exceed $20,000.

The marketplace generally would not be required to issue the form under the federal TPSO threshold solely because of those numbers.

Example 2: $27,000 and 145 Transactions

Another seller receives:

$27,000

across

145 transactions

The dollar threshold was exceeded, but the transaction threshold was not.

Again, the federal TPSO threshold itself generally would not require a form.

Example 3: $27,000 and 260 Transactions

A seller receives:

$27,000

across

260 transactions

Both thresholds were exceeded.

The reporting requirement is generally triggered.

You Can Still Receive a 1099-K Below the Threshold

The $20,000-and-200 rule is a minimum federal reporting requirement for qualifying third-party settlement organizations.

It does not prohibit marketplaces from sending forms below that threshold.

The IRS specifically warns taxpayers that they may receive Form 1099-K even when their payments or transaction count are below the federal threshold.

So receiving a form when you made only $8,000 of sales does not necessarily mean something went wrong.

It also does not mean you suddenly owe tax on the entire $8,000.

The form is simply reporting payment activity.

Your tax return determines the actual tax treatment.

Credit Card Payments Work Differently

Online sellers who operate their own websites should pay particular attention to this distinction.

The $20,000-and-200 threshold applies to qualifying third-party settlement organizations.

Payment-card transactions do not have the same federal de minimis threshold.

According to the IRS, sellers who receive payments directly through credit, debit, or stored-value card transactions may receive Form 1099-K regardless of the dollar amount processed.

This means two sellers with identical revenue can have very different reporting situations depending on how customers paid them.

One seller might process payments entirely through a marketplace.

Another might operate an independent ecommerce site using card processing.

The forms they receive may therefore differ even when their businesses generate similar revenue.

The 1099-K Threshold Is Not a Tax-Free Threshold

This is probably the single most important rule for sellers to understand.

Suppose you sell $12,000 worth of merchandise and do not receive a Form 1099-K.

That does not automatically mean the $12,000 disappears for tax purposes.

The IRS states that the reporting threshold does not determine whether income is taxable or whether it must be reported.

Think of the threshold this way:

It determines when certain payment companies must report transactions on Form 1099-K.

It does not determine whether your business activity exists.

A reseller should therefore maintain sales and expense records independently of whatever tax forms marketplaces eventually send.

Why Your 1099-K Number May Look Much Higher Than Your Profit

Form 1099-K reports gross payment transactions.

It is not a profit statement.

Current IRS guidance says Box 1a is generally not reduced for items such as:

• marketplace fees
• payment-processing fees
• refunds
• credits
• shipping
• discounts
• cash equivalents

It also does not automatically subtract the amount you originally paid for the products you sold.

That distinction can be enormous for a reseller.

Example

Suppose your marketplace activity for the year looks like this:

Gross customer payments: $48,000

Product acquisition costs: $25,000

Marketplace/payment fees: $6,200

Shipping expenses: $4,400

Refunds and credits: $1,500

Other qualifying business expenses: $2,000

A 1099-K could reflect a gross-payment amount near the top of that calculation rather than your ultimate business profit.

That does not mean you earned $48,000 in profit.

Your accounting records are what allow you to reconcile gross sales with product costs, refunds, fees, shipping expenses, and other legitimate business costs.

Product Cost Is Especially Important for Resellers

For a service business, most revenue may come from labor.

For a reseller, a substantial portion of every sale may represent the cost of the merchandise itself.

The IRS refers to this as cost of goods sold, or COGS.

For businesses that buy merchandise for resale, cost of goods sold is generally part of the calculation used to determine gross profit. Current IRS small-business guidance explains that sellers of merchandise may need to account for purchases and inventory when calculating COGS.

Consider a simple transaction:

You buy an item for:

$40

You sell it for:

$75

Ignoring other expenses, your economic gain is not $75.

The product itself cost $40.

If you fail to track acquisition costs, your marketplace payment totals will provide a badly distorted picture of your actual business performance.

Keep Purchase Records for Inventory

For resellers, purchase documentation can be just as important as sales documentation.

Useful records include:

• supplier invoices
• retail receipts
• wholesale invoices
• online purchase confirmations
• liquidation manifests
• auction receipts
• freight invoices
• import documents
• purchase spreadsheets
• SKU-level inventory records

If you source merchandise from thrift stores, garage sales, flea markets, estate sales, or local sellers, record purchases consistently even when documentation is limited.

At minimum, a sourcing record might include:

Date

Item

Quantity

Amount paid

Seller or location

Payment method

Related SKU or inventory number

The IRS emphasizes that business records should clearly document income and expenses and support amounts reported on a tax return.

Marketplace Fees Should Be Reconciled Separately

One mistake sellers make is comparing the money deposited into their bank account directly with Form 1099-K.

Those numbers may not match.

Imagine a marketplace sale:

Customer pays: $100

Marketplace fee: $14

Shipping label: $8

Advertising fee: $5

Amount eventually deposited: $73

Your payment report may still begin with the $100 gross transaction, while the cash that reaches your account is only $73.

Neither number alone tells the full story.

Your bookkeeping needs to preserve the bridge between them.

A simple reconciliation should track:

Gross sales

minus

refunds and allowances

minus

marketplace/payment fees

minus

shipping and fulfillment

minus

cost of goods sold

minus

other qualifying business expenses

That structure makes tax preparation much easier than trying to reconstruct the year from bank deposits.

What Happens If You Sell on Multiple Marketplaces?

Sellers operating across several marketplaces can receive multiple Forms 1099-K.

The IRS specifically notes that sellers accepting payments through different platforms may receive more than one form.

For example, you might receive separate reporting from:

Marketplace A

Marketplace B

Your website payment processor

A payment app used for local transactions

Do not simply add the forms together without comparing them with your own transaction records.

Look for:

• duplicate reporting
• missing transactions
• payments recorded in the wrong year
• business and personal payments mixed together
• incorrect taxpayer identification information
• amounts assigned to the wrong business entity

Your accounting system should remain the primary ledger.

The 1099-K forms should be reconciled against it.

Some States Have Lower Thresholds

Federal rules are not necessarily the end of the story.

The IRS explicitly warns that some states may impose lower TPSO reporting thresholds, which can result in sellers receiving Form 1099-K even though they are below the federal $20,000-and-200 level.

That is another reason a seller should never assume:

“I am under the federal threshold, so I cannot receive a form.”

State requirements can differ.

Check the tax agency rules for the state where you file.

Selling Personal Belongings Is Different From Running a Reselling Business

Another common source of confusion is selling used personal property.

Imagine someone bought a couch for:

$1,800

Years later, they sell it online for:

$600

The $600 marketplace payment does not automatically mean they made $600 of taxable profit.

They actually sold the personal item for less than its original cost.

The IRS explains that losses on the sale of personal-use property generally are not deductible, but a personal-item sale reported on Form 1099-K may need to be reported in a way that prevents the gross payment from incorrectly appearing as taxable income.

The opposite situation is different.

Suppose someone buys a collectible for personal use for:

$500

and later sells it for:

$900

The $400 gain may be taxable. IRS guidance says gains on personal items generally must be reported even though losses on personal items generally are not deductible.

Regular inventory purchased specifically for resale is a different business situation from occasionally selling used household belongings.

What If Your 1099-K Is Wrong?

Do not ignore an incorrect form.

First compare:

• your name
• taxpayer identification number
• gross-payment amount
• marketplace account
• business entity
• transaction records

If the form contains incorrect information, IRS guidance recommends contacting the issuer to request a correction.

Keep documentation of the correction request.

Common problems can include:

• a form issued under your personal name instead of your business
• an incorrect taxpayer ID
• transactions that do not belong to you
• gross payments that do not match marketplace records

Do not simply alter your bookkeeping until it matches an incorrect tax form.

Investigate the difference.

A Better Recordkeeping System for Online Sellers

The easiest time to prepare for Form 1099-K is before January.

A simple monthly process can prevent a major year-end cleanup.

Every Month, Save These Numbers

For each marketplace, record:

Metric	Monthly Total
Gross sales	$
Customer shipping collected	$
Refunds	$
Marketplace fees	$
Payment-processing fees	$
Advertising fees	$
Shipping labels	$
Product purchases	$
Other operating expenses	$
Net marketplace payout	$

Then compare the marketplace report with your accounting records.

If something is wrong in March, it is much easier to investigate in April than the following February.

Keep Business and Personal Payments Separate

Mixing personal payments with business selling activity creates unnecessary work.

If possible:

• use separate business marketplace accounts
• use a separate business bank account
• use separate payment accounts for business activity
• label personal reimbursements correctly in payment apps
• avoid routing personal transactions through business sales accounts

The IRS says genuine personal payments such as gifts or reimbursements between friends and family should not be reported as payments for goods or services.

Cleaner separation reduces the amount of reconciliation required later.

A Practical Year-End 1099-K Checklist

Before the year closes, online sellers should consider reviewing:

• Marketplace gross sales totals
• Transaction counts
• Product purchase records
• Ending inventory records
• Refunds and returns
• Marketplace fees
• Advertising charges
• Shipping expenses
• Fulfillment expenses
• Payment-processing fees
• Business bank deposits
• Personal transactions accidentally mixed into business accounts
• Sales processed through independent card processors
• State-specific 1099-K rules

Then, when Forms 1099-K arrive, compare them against records you have already reconciled.

That is much easier than using the forms to recreate an entire year of business activity.

Common 1099-K Mistakes Sellers Should Avoid

Mistake 1: Treating $20,000 as Tax-Free Income

It is a reporting threshold for certain payment organizations, not a blanket income exclusion.

Mistake 2: Treating the 1099-K Amount as Profit

Box 1a generally reports gross payments and does not automatically account for marketplace fees, refunds, shipping, product cost, or other adjustments.

Mistake 3: Ignoring Inventory Cost

For a reseller, the cost of merchandise can represent one of the largest components of the business.

Mistake 4: Assuming No Form Means No Reporting

Business activity still needs to be properly reported regardless of whether a marketplace issues Form 1099-K.

Mistake 5: Waiting Until Tax Season to Reconcile

Twelve months of marketplace transactions can be difficult to reconstruct accurately in a few days.

Monthly reconciliation is dramatically easier.

The Bottom Line

The 2026 Form 1099-K rules are less complicated once you separate three different concepts:

Marketplace reporting

Business accounting

Taxable profit

For qualifying payment apps and online marketplaces, the current federal TPSO reporting requirement generally begins when gross payments exceed $20,000 and transactions exceed 200.

But that number does not define whether your business income exists.

And the amount shown on Form 1099-K is not a calculation of your profit.

The form reports payment activity.

Your records explain what happened to that money.

For online sellers, the most useful preparation is therefore not obsessing over whether a form will arrive.

It is maintaining accurate records for:

sales + inventory cost + refunds + fees + shipping + other expenses

When those records are already organized, Form 1099-K becomes what it was intended to be: another document to reconcile—not a tax-season surprise.

Sources

Internal Revenue Service — Understanding Your Form 1099-K
IRS Form 1099-K overview

Internal Revenue Service — Form 1099-K FAQs: General Information
IRS 1099-K FAQs

Internal Revenue Service — 2026 Instructions for Form 1099-K
2026 Form 1099-K instructions

Internal Revenue Service — What to Do With Form 1099-K
IRS 1099-K reporting help

Internal Revenue Service — Recordkeeping for Small Businesses
IRS small-business recordkeeping guidance