1099-k 2015It’s been a handful of years since the introduction of the 1099-K form from the IRS, and there is still confusion about how it should be handled. Even with the instructions from the IRS, many people don’t understand how to manage it, and that has led to headaches at tax time.

Here are three things you should know about the 1099-K:

1. If You Pay Through PayPal, You May Not Have to Issue a 1099-MISC

The 1099-K is issued by third-party payment processors. This means that if you pay your contractors through PayPal, there is a good chance that they won’t have to issue the 1099-MISC to them. This is the same if you use other third-party processors to take care of the payments. This can cut down on the paperwork you do. You’ll still need to have records showing your payments to others to support it as an expense, but you might not need to issue a 1099-MISC.

In fact, your contractors might prefer you not to, since that can lead to complications on your end.

2. If You are a Contractor, Your Income Might be Double-Reported

When you accept payment through PayPal, you will receive a 1099-K if you complete at least 200 transactions and your income totals at least $20,000. This is the case if you use any third-party processor to get paid. The problem is that some of your income might be double-reported. Even though your clients don’t need to issue you a 1099-MISC, they might. This means that your income will be reported as part of the 1099-K, and separately on a 1099-MISC. The IRS could come knocking if you have double-reported income.

In order to stave off extra payment, you need to keep good records. Make a note of income earned paid through third-party processors, and cross-reference it with those that issue you a separate 1099-MISC. You might need to highlight payments from a PayPal statement, and keep a spreadsheet to show that you really are reporting all your income.

This is tedious for you, and if you can, try to educate your clients about the process, and encourage them to not send you a 1099-MISC if they pay through a third-party like PayPal, you’ll have better results and fewer headaches.

3. Keep Good Records, Just in Case

Even though you’re supposed to receive a 1099-K in certain circumstances, you might not receive a copy. (This is true of the 1099-MISC as well.) Keep good records, and report all of your income. Just because you didn’t receive the right paperwork doesn’t mean it wasn’t sent to the IRS. The IRS might have the record, even if you don’t, so you’re better off being honest.

Also, keeping good records can help you in an audit situation. Knowing where you stand, in terms of income and expenses, can help you prove your case to the IRS, and it will also help you figure out if you should be receiving certain paperwork. If you are missing something, it allows you to contact the issuing entity and make sure they rectify the situation.