1099-K Client Communications: How to Reduce Confusion for PayPal/Venmo Sellers

Form 1099-K is one of the most common sources of client confusion right now, and it is easy to see why. People receive a form from PayPal, Venmo, Etsy, Stripe, Square, eBay, or a marketplace they used casually. The form shows a big number. Clients assume it is all taxable. Some panic. Some ignore it. Both paths create rework for your team.

The IRS is clear about what 1099-K is meant to do: it reports payments received for goods or services through payment cards or third-party settlement organizations (TPSOs), like payment apps and online marketplaces. The form is a reporting document, not a tax bill. The number on it is not automatically taxable income. It is a starting point for reconciliation.

For CPA and accounting firms, the winning move is to treat 1099-K as an intake and documentation workflow, not as a last-minute data entry problem.

The reporting thresholds are evolving, and clients are not keeping up

A major reason 1099-K causes trouble is that the “who gets a 1099-K” story has changed repeatedly. The IRS issued additional transition guidance that affects enforcement and administration for TPSO reporting thresholds:

• Calendar year 2024: a TPSO is not required to report unless payments exceed $5,000 (no transaction minimum)
• Calendar year 2025: threshold drops to $2,500 (no transaction minimum)
• Calendar years after 2025: threshold becomes $600 (no transaction minimum)

At the same time, payment card transactions have their own rules. The IRS notes that if someone takes direct payment by credit or bank card for selling goods or providing services, they can receive a 1099-K from their payment card processor regardless of count or dollar amount.

Practical impact for your firm: more clients will receive 1099-K forms, even when they are not running what they think of as a business. The IRS even emphasizes in its myths vs facts guidance that taxpayers may receive a 1099-K from payment apps or online marketplaces used to sell goods or services.

Why the 1099-K number rarely matches “taxable income”

The fastest way to reduce client anxiety is to explain one key concept: Box 1a is gross, not net.

The IRS states that the gross payment amount on Form 1099-K does not include adjustments for fees, credits, refunds, shipping, cash equivalents, or discounts, and those items are not income. This is exactly why clients think they are being taxed on money they never kept.

For your team, this means a clean 1099-K workflow must include:

• identifying what portion of 1099-K relates to goods or services that are taxable
• reducing gross receipts by allowable offsets and expenses where applicable
• excluding personal, non-taxable transfers that were miscategorized by the platform

Personal payments vs goods and services: the confusion you must solve early

The IRS says money received from friends and family as a gift or repayment for a personal expense should not be reported on a 1099-K and is not taxable income. It also recommends marking transactions as non-business in payment apps when possible.

In real life, clients mix personal and business activity in the same app all the time. If your organizer only asks “Did you get a 1099-K?” you will find out too late that half of the transactions were reimbursements or personal transfers.

A better approach is to ask two organizer questions that force clarity:

• Did you use payment apps or marketplaces to receive payments for goods or services?
• Were any personal reimbursements or gifts mixed into the same account?

That second question is the one that prevents last-minute reconstruction.

A 1099-K reconciliation workpaper that reviewers actually like

The IRS encourages taxpayers to use Form 1099-K with other records to figure and report the correct income. Your firm needs an internal version of that idea: a simple reconciliation that ties the form to the return position.

A reviewer-friendly 1099-K workpaper usually includes:

Platform inventory
List each platform that issued a 1099-K, plus any platforms used that did not issue one. This prevents the “we only filed what showed up” mistake.

Classification split
Break activity into buckets:

• business receipts
• sale of personal items (note whether sold at gain or loss)
• reimbursements and gifts
• pass-through collections (money collected on behalf of someone else)

Gross-to-net bridge
Start with Box 1a gross and reconcile to what ends up on the return:

• remove non-income items (personal reimbursements, gifts)
• account for refunds and chargebacks
• account for platform fees and shipping offsets if included in the gross flow
• tie business amounts to books when possible

Exception notes
If a form is incorrect or includes activity that clearly is not yours, document it and show the action taken to address it.

This is not about adding paperwork. It is about making the file defensible and reducing review cycles.

When the 1099-K is wrong: what the IRS tells taxpayers to do

Clients often ask, “Should we call the IRS?” The IRS guidance is direct: request a corrected form from the issuer, keep documentation, and file even if you cannot get a corrected form.

Operationally, you want a firm-standard response packet:

• a short client email explaining who to contact on the form and what to request
• a deadline for the client to attempt correction
• a plan to file without waiting if timing requires it, with documentation in the workpapers

When your staff follows one script, you avoid ten different interpretations and a lot of inbox noise.

The client messaging that prevents panic

Your best message is calm and specific:

• A 1099-K reports gross payments processed through a platform.
• Gross does not equal taxable income.
• We will reconcile the form to your records to report the correct amount.
• Personal reimbursements and gifts are generally not taxable, even if mistakenly reported, but we need the details to document the position.

The IRS has a 1099-K help hub and guidance explaining what to do with the form, which you can reference in your client email to reduce back-and-forth.

Why this work is a great fit for a dedicated support lane

1099-K resolution is detail-heavy and repeatable: intake, platform inventory, transaction export requests, classification tagging, and building the reconciliation. This is the kind of work that should not consume senior reviewer time.

A dedicated support lane helps you stay consistent across dozens or hundreds of clients. And the value clients notice most is not the behind-the-scenes mechanics, it is reliability. One Finsmart client described it as: “Their communication was steady, their execution was thorough.” Another highlighted the benefit of a team that “integrates seamlessly into our operations” and feels “diligent, proactive.”

If your firm is scaling capacity, this type of standardized reconciliation work aligns well with an embedded model like the Finsmart Accounting Accounting Seat Model and dedicated US Tax Seat support. And when you need surge output without adding headcount, Finsmart also offers pay-per-return support delivered in batches of 50 returns, which can be useful for a defined segment like “1099-K heavy” 1040s.

If you want a plug-and-play 1099-K organizer insert, a reviewer-ready reconciliation template, and a client email script that matches IRS guidance, email [email protected] with the platforms your clients use most (PayPal, Stripe, Square, Etsy, etc.) and how you currently track fees and refunds, or book a meeting to review your current 1099-K challenges and identify a practical, firm-ready solution.