Form 1099-K reports the gross payments a marketplace or payment processor settled to you. That figure is the starting point for calculating your income, not a measure of profit.
The federal threshold
After several years of delays and scheduled reductions, the 2025 law restored the original federal threshold. A 1099-K is required when gross payments exceed $20,000 and there are more than 200 transactions in the year. Card payments settled by a merchant processor have no federal minimum, though many processors, including Stripe and Square, issue forms only above the $20,000 and 200-transaction level, or at a lower level in some states.
All income is taxable whether or not you receive a form.
If your sales or FBA inventory have spread into new states, Summer Associates can run a state-by-state nexus review.The first consultation is free, with no obligation.
Book a free consultationStates with lower thresholds
| State | Threshold |
|---|---|
| District of Columbia, Maryland, Massachusetts, Vermont, Virginia | $600 |
| Illinois | Over $1,000 and at least 4 transactions |
| New Jersey | $1,000 |
| Arkansas | $2,500 |
These are examples, not a complete list, and state rules change, so check your state's current threshold. Marketplaces often issue forms to sellers in these states at the lower amount, and the state receives a copy.
Connecticut has no lower threshold of its own. Platforms must send its Department of Revenue Services a copy of every federal 1099-K they file for a payee located in Connecticut, within 30 days of filing with the IRS, so the state sees the same gross figure the IRS does.
Key numbers: federal 1099-K over $20,000 and over 200 transactions · $600 in several states · Form 1099-NEC threshold $2,000 for 2026 payments.
Reconciling gross to net
The IRS matches 1099-K totals to your return, so bridge the difference with clear categories:
- Refunds and returns issued to customers.
- Marketplace fees, including referral, FBA fulfillment, storage, and advertising fees.
- Shipping collected versus shipping paid.
- Sales tax collected by the marketplace, which some processors include in gross.
- Chargebacks and disputes.
Report the 1099-K gross on your return and deduct fees, refunds, and costs separately, so the IRS's matching program sees the full amount.
Personal sales on platforms
If you sold personal items at a loss, such as old furniture on eBay, the sale is not taxable income. Report it so it nets to zero, and keep records showing what you paid.
A worked example
An Etsy seller receives a 1099-K for $186,000. Her books show $9,400 of refunds, $27,800 of Etsy fees and ads, $14,200 of sales tax included in gross by the platform, and $41,000 of cost of goods sold. Her net profit is $93,600, not the $186,000 shown on the form.
Common mistakes
- Reporting only net deposits, which triggers an IRS mismatch notice.
- Ignoring a payment app's 1099-K because a marketplace also reports your sales, or counting the same sales twice. Reconcile both forms to your books.
- Missing state-level forms in lower-threshold states.
How Summer Associates helps
Summer Associates' e-commerce team reconciles every 1099-K to your books, documents the bridge, and responds to IRS matching notices if they arrive.
Sources
This guide is general education based on federal and Connecticut law as of 2026-11-15. State rules differ and facts matter. Before acting, get advice for your situation from Summer Associates or another qualified advisor.