Industries
Ecommerce bookkeeping and taxes: Form 1099-K, contractor 1099s and marketplace sales tax
Bookkeeping and tax filing for online stores: why Form 1099-K shows gross sales, not your deposits, the $20,000 and 200-transaction rule, $2,000 Form 1099-NEC threshold, marketplace facilitator sales tax and 2026-2027 penalties.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
Online marketplaces and payment apps send the IRS a Form 1099-K when a seller's payments for goods or services top $20,000 in more than 200 transactions, while card processors report all direct card sales. Box 1a shows gross sales with no deduction for fees, refunds or shipping, and the IRS says all income must be reported whether or not a Form 1099-K arrives.
Why online stores need bookkeeping and taxes in one place
Aldro is the cheapest way to get your business taxes done: $399 flat, with bookkeeping at $20 a month.
Marketplaces, payment apps and card processors report your gross sales to the IRS. Your bank only sees net payouts, after fees and refunds come out. If the books record deposits instead of gross sales, the return won't line up with what the IRS already has on Form 1099-K.
Online stores also deal with two kinds of 1099 at once: the ones they receive (Form 1099-K) and the ones they may owe contractors (Form 1099-NEC). On top of that comes state sales tax, which depends on where you sell and whether a marketplace collects it for you.
Form 1099-K: who sends it and when
Form 1099-K reports payments for goods or services received through payment cards (credit, debit or gift cards) and through payment apps or online marketplaces, which the IRS calls third party settlement organizations (TPSOs).
If customers pay you directly by card, your payment card processor sends a Form 1099-K no matter how many payments you got or how much they were for. A payment app or online marketplace has to send one when your payments for goods or services total over $20,000 in more than 200 transactions. It may send one for lower amounts too. Sellers on several platforms can get more than one.
The platforms must send you a copy by January 31. The IRS copy is due February 28 on paper or March 31 if filed electronically.
The reporting threshold doesn't decide what's taxable. The IRS says that no matter the amount reported, if you receive payments for selling goods or services, you must report all income on your tax return.
Gross to net: reconciling Form 1099-K with your deposits
Box 1a is the gross amount of reportable transactions. The IRS instructions define gross amount as the total without any adjustment for credits, cash equivalents, discounts, fees, refunds, shipping amounts or any other amounts. So Box 1a will almost always be higher than what landed in your bank account.
Box 1b shows the part of that total where the card was not present or the card number was keyed in. For 2026, the form adds Box 1c for cash tips, required by P.L. 119-21, and Box 1d for Treasury Tipped Occupation Codes.
In the books, that means recording each payout as gross sales, then booking refunds, platform and processing fees and shipping as separate lines. The gross sales figure then ties to Box 1a, and the deductions show why the deposits are lower.
Paying contractors: Form 1099-NEC or Form 1099-K
For tax years beginning after 2025, the minimum for reporting certain payments, including on Form 1099-NEC and Form 1099-MISC, rose to $2,000. It will be adjusted for inflation beginning in 2027. Form 1099-NEC is due to both the IRS and the contractor by January 31.
How you pay matters. Payments made by payment card or through a third party payment network are reported under section 6050W, on Form 1099-K by the payment company, and not under the sections that require Form 1099-NEC or 1099-MISC. That keeps the same payment from being reported twice.
Before paying, collect a taxpayer identification number. If a payee doesn't give one, reportable payments including nonemployee compensation may be subject to backup withholding at 24%. Backup withholding is reported on Form 945, and the payer files a Form 1099 even if the payment is below the normal threshold. For a foreign payee, the IRS suggests requesting the appropriate Form W-8.
Businesses that must file 10 or more information returns in a year have to e-file, and the count covers all form types together. Beginning with tax year 2026, filed in 2027, the IRS's Information Returns Intake System (IRIS) is the only intake system for information returns.
Marketplace facilitator and remote seller sales tax
The Streamlined Sales Tax Governing Board defines a marketplace facilitator as a business that owns, operates or controls a physical or electronic marketplace, facilitates sales of a third-party seller's products, and collects payment from the buyer and passes all or part of it to the seller. Many states require facilitators to collect and remit sales tax on sales they facilitate once they pass the state's threshold.
A remote seller has no physical presence in a state but sells products or services for delivery into it. A business with physical presence in a state is generally required to register there regardless of the amount of sales.
Selling through a marketplace doesn't settle everything. The board says a marketplace seller may also be required to register and file sales and use tax returns in a state. Thresholds also count different things: Washington counts cumulative gross receipts, including wholesale sales and both facilitated and direct sales, while Ohio counts only retail sales and excludes sales for resale. That is why the books should keep marketplace sales and direct website sales apart.
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| State | Facilitator threshold |
|---|---|
| Alaska | $100,000 of statewide gross remote sales in the previous or current calendar year (200-transaction test repealed January 1, 2025) |
| North Carolina | More than $100,000 of gross sales in the prior or current calendar year (200-transaction test repealed July 1, 2024) |
| South Dakota | More than $100,000 of gross revenue from sales in the previous or current calendar year (since July 1, 2023) |
| Kentucky | More than $100,000 of gross sales or 200 or more sales transactions into the state in the previous or current calendar year |
| Ohio | More than $100,000 of gross sales or 200 transactions, counting retail sales only |
| Oklahoma | $10,000 or more of taxable sales of products in the preceding 12 months: collect and remit, or meet notice and reporting rules |
| Texas | $500,000 |
| Washington | $100,000 of cumulative gross receipts, including facilitated and direct sales |
Information return penalties for 2026 and 2027
The IRS charges a penalty for each information return not filed correctly or on time, and a separate one for each payee statement not provided correctly on time. A small business, for these caps, has average annual gross receipts of $5 million or less over the 3 most recent tax years.
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| How late | Due in 2026 | Due in 2027 |
|---|---|---|
| Up to 30 days late | $60 | $60 |
| 31 days late through August 1 | $130 | $130 |
| After August 1 or not filed | $340 | $340 |
| Intentional disregard | $680, no maximum | $690, no maximum |
There is a de minimis safe harbor: no correction is needed and no penalty applies if a reported amount is off by no more than $100, or no more than $25 for tax withheld, unless the recipient asks for a corrected statement.
Penalty relief is changing. The IRS's new Automatic Exemption from Penalty will replace First Time Abate for eligible returns with original due dates on or after January 1, 2027. Information returns generally aren't eligible, so 1099 penalty relief still depends on reasonable cause. The IRS says a business with reasonable cause that gets Notice 972CG should respond within 45 days, before the penalty is assessed.
What Aldro covers for online stores
Bookkeeping at $20 a month covers unlimited bank and card accounts, monthly reconciliation and statements, so each platform payout is booked gross with its fees and refunds. The flat tax price covers everything tax for the year: the federal and state business returns, including multi-state returns, plus information returns such as Form 1099-NEC. Our team prepares and files.
Sales-tax filing and payroll processing aren't included in bookkeeping. Keep separate records of marketplace and direct sales so whoever files your state sales tax returns has the split by state.
Payers keep copies of filed information returns, or the ability to reconstruct the data, for at least 3 years from the due date, or 4 years if backup withholding was imposed.
Worked example
Say an online store sells $50,000 through a marketplace in 2026 across 640 orders. Because that's over $20,000 and over 200 transactions, the marketplace sends a Form 1099-K by January 31, 2027 with $50,000 in Box 1a. During the year the store refunded $2,000 and paid $6,500 in marketplace and payment fees, so its bank received $41,500. The books record $50,000 of gross sales, $2,000 of refunds and $6,500 of fees, which ties to Box 1a and explains the $8,500 gap to the deposits. The same store paid a freelance designer $2,400 by bank transfer and a photographer $3,000 through a payment app. The designer gets a Form 1099-NEC from the store by January 31, 2027 ($2,400 is over the $2,000 threshold). The photographer's payment went through a third party network, so it's reported on Form 1099-K by the payment company, not on a Form 1099-NEC from the store. If the store filed its Form 1099-NEC 20 days late, the penalty would be $60 for that return, plus a separate penalty if the designer's copy was also late.
Common questions
What is the Form 1099-K threshold for online sellers?
Payment apps and online marketplaces report when your payments for goods or services top $20,000 in more than 200 transactions in a calendar year. Card processors report direct card payments at any amount.
Why is my Form 1099-K higher than my bank deposits?
Box 1a is the gross amount, with no adjustment for credits, discounts, fees, refunds or shipping. Deposits are net of those, so the books need to show gross sales and each deduction separately.
Do I report ecommerce income if I don't get a Form 1099-K?
Yes. The IRS says that whether or not you receive a Form 1099-K, you must report all income from selling goods or services on your tax return.
Do I send a Form 1099-NEC to a contractor I paid by card or payment app?
No. Payments made by payment card or through a third party payment network are reported on Form 1099-K under section 6050W, not on Form 1099-NEC or 1099-MISC. For other payments, Form 1099-NEC applies at $2,000 or more for tax years beginning after 2025.
If the marketplace collects sales tax, do I still need to track those sales?
Yes. Marketplace sellers may still have to register and file sales and use tax returns in some states, and some states, such as Washington, count both facilitated and direct sales toward their threshold.
What are the penalties for late 1099s in 2026 and 2027?
$60 per return up to 30 days late, $130 from 31 days through August 1, and $340 after August 1 or if never filed. Intentional disregard is $680 for returns due in 2026 and $690 for 2027. Late payee statements carry a separate penalty.
The cheapest way to get your business taxes done: $399 flat.
Business tax filing is $399 USD a year, and it covers everything tax for that year.
How it works
- Tell us about your business. A two-minute form. No payment is collected through it.
- Get your next steps by email. We’ll email you the next steps within one business day. After you sign up we’ll send you a secure upload link for your documents.
- We file it. Our team prepares and files your return. Add bookkeeping for $20 a month if you want it.
What's included
$399 a year covers everything tax for that tax year.
- Every business return for the year. All the federal and state or provincial business returns you need for the tax year: Schedule C, 1065, 1120-S, 1120 and their state returns in the US; T2, or T1 with T2125, in Canada.
- More than one state. Multi-state returns are included at the same price.
- Your personal return. The owner’s personal return (1040 or T1) is included when it’s needed for the business income.
- Quebec. Quebec returns (CO-17, TP-1 and TP-80) are included. Our Quebec pages are in French, and our team works with you in English.
- Extensions and reminders. Extensions (Form 7004 or 4868) and quarterly estimate reminders are included.
- Information returns. 1099-NEC, T4/T4A and T5018 slips are included in the tax price.
- City and excise returns. City and local business tax returns, and state excise returns such as Washington B&O, are included in the yearly price.
- Franchise tax reports. State franchise tax reports, such as the Texas franchise tax report, are included.
- Estimated tax and instalment amounts. We work out your quarterly estimated tax payments in the US, or your CRA instalments in Canada, and tell you what to pay and when.
- Unfiled past years. Each unfiled prior-year return is $399 per tax year, the same flat price.
- Bookkeeping at $20 a month. Unlimited bank and card accounts, monthly reconciliation and monthly statements.
Basic inventory tracking for online stores, such as Shopify, is included. Full cost-of-goods reconciliation is quoted separately. Payroll processing and sales-tax filing aren’t included in bookkeeping. Prices are in USD. Our team prepares and files your return.
Sources
- IRS: Instructions for Form 1099-K · checked October 31, 2026
- IRS: Understanding your Form 1099-K · checked October 31, 2026
- IRS: Publication 1099, General instructions for certain information returns · checked October 31, 2026
- IRS: Information return penalties · checked October 31, 2026
- IRS: Automatic penalty relief announcement · checked October 31, 2026
- Streamlined Sales Tax Governing Board: Marketplace facilitator · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.