Facebook has become a popular platform for individuals and businesses to buy and sell products. With Facebook Marketplace, Facebook Shops and third-party ecommerce apps, it’s easier than ever to become an entrepreneur on Facebook.
However, if you’re making a decent amount of money on Facebook, you may be wondering about tax implications. Specifically, you may want to know if you need to report your Facebook income on your taxes. And if so, will you receive a 1099 tax form from Facebook?
Overview of 1099 Tax Forms
A 1099 form is used to report various types of income to the IRS. Some common 1099s include:
- 1099-MISC – for miscellaneous income like freelance or contract work
- 1099-K – for payment processing transactions
- 1099-INT – for interest income
- 1099-DIV – for dividend income
- 1099-B – for proceeds from broker and barter transactions
If you receive over $600 from any one payer in a calendar year, they should provide you with the appropriate 1099 based on the type of income.
The purpose of 1099s is to help the IRS match income recipients report on their tax returns. If you don’t receive a 1099 for income you made, you still need to voluntarily report it on your tax return.
Does Facebook Issue 1099s?
Facebook itself does not issue 1099 tax forms.
Facebook considers itself a platform, not a payer. So even if you make well over $600 in a calendar year from selling on Facebook, you won’t receive a 1099-K or 1099-MISC directly from Facebook.
Payment Processors May Issue 1099s
However, many sellers on Facebook use third-party payment platforms like PayPal or Stripe to process transactions.
These payment processors will issue you a 1099-K if you meet both of the following criteria:
- You received over $20,000 in gross payment volume AND had over 200 payment transactions in a calendar year from that payment processor.
So if you’re using PayPal, for example, and you exceeded $20,000 in sales and 200 transactions through your PayPal account in 2023, you’ll receive a 1099-K from PayPal in early 2024 reporting your 2023 volume.
Lower Threshold for Third-Party Payment Processors Starting in 2022
The 1099-K reporting requirements used to be higher for third-party payment processors like PayPal and Stripe. But starting in tax year 2022:
- The reporting threshold drops from $20,000 and 200 transactions to just $600 gross paid to a user in a calendar year, regardless of the number of transactions.
So if you’re using PayPal, Venmo, Zelle or other third-party apps to process Facebook transactions starting in 2022, be aware you may receive a 1099-K if you exceed $600 in gross revenue.
You May Need to Voluntarily Report Facebook Income
Since Facebook itself does not issue 1099s, if you do not meet the 1099-K thresholds for third-party payment processors, you may need to voluntarily report your Facebook income on your tax return.
You should report your Facebook income on Schedule C or Schedule C-EZ as miscellaneous business income. Make sure you keep accurate records of your revenue and expenses.
Even without receiving a 1099, you are still responsible for paying income taxes on all your earnings. The IRS can audit you based on inaccurate or unreported income.
Tax Requirements for Facebook Business Pages
If you have a Facebook business Page and you’re selling physical products or services, here are some tips to keep in mind:
- Obtain an Employer Identification Number (EIN) from the IRS if you want to open a business bank account or have employees.
- Track all business income and expenses.
- File a Schedule C along with your personal 1040 tax return to report your profit or loss from the business.
- You may need to pay estimated quarterly taxes on your income if expected to owe $1,000 or more.
- Collect sales tax if selling taxable items in your state and submit to your state department of revenue.
- Issue 1099s to any subcontractors you paid over $600 in a year.
Making Tax Time Easier
Here are some tips to make tax time less painful if you have a Facebook shop or selling business:
- Use accounting software or Excel to track income and expenses.
- Save receipts and keep organized records.
- Consider hiring a tax professional if your business is growing.
- Make estimated quarterly tax payments to avoid penalties.
- Contribute to retirement accounts to lower your taxable income.
- Deduct eligible business expenses like product costs, advertising, mileage, etc.
- Take advantage of all available business tax deductions.
- Consider incorporating as an LLC or S-corp for potential tax savings.
Wrapping Up
In summary, here are some key points to remember:
- Facebook itself does not issue 1099 forms.
- Third-party payment processors like PayPal will issue a 1099-K if you exceed $20,000 and 200 transactions in a calendar year.
- The 1099-K threshold for third-party payment processors drops to $600 of gross income starting in tax year 2022.
- Even without a 1099, you must report your Facebook income voluntarily on Schedule C.
- Keep detailed records and use accounting software to make filing taxes easier.
- Consider forming a business entity for potential tax savings as your shop scales.
- Hire a tax professional if you need help filing your Facebook business taxes.
Selling on Facebook can be a rewarding way to start or grow a business. Just make sure you are keeping track of your income and expenses accurately, and filing the proper tax forms to stay compliant. With some planning and organization, you can manage your Facebook shop tax obligations stress-free.