Why is there a discrepancy between my 1099-K and my month-end statements?

You may often notice a difference between the transaction totals reported on your 1099-K form and the figures shown in your month-end statement. Typically, this happens due to processing fees, refunds, chargebacks, timing differences, or reserve holds. 

Understanding Form 1099-K and month-end statements

The 1099-K tax form is issued by payment processors and reports the gross payment volume of card transactions processed throughout the year. It includes all sales before any deductions.

Month-end statements provide a net breakdown of processed transactions, including fees, refunds, chargebacks, and adjustments.

Below you will find some of the most common reasons why these differences occur and how to interpret them correctly.

• Processing fees are deducted from month-end statements: 1099-K reports total sales before fees, whereas month-end statements subtract processing fees before deposit. If you compare your month-end statement deposits directly to the 1099-K, the totals will not match.
• Chargebacks and refunds are not included in 1099-K gross sales: refunds and chargebacks are reported separately and not deducted from the total amount on the 1099-K. Your month-end statements, however, will reflect refunds and chargebacks, reducing the total funds deposited.
• Adjustments and reserves: some accounts may have held reserves or adjustments that impact the actual deposits received. These are not factored into the 1099-K total but will appear in month-end statements.
• Timing differences: the 1099-K is based on transaction processing dates, while month-end statements align with deposit dates. If a transaction is processed at the end of December but settled in January, it might appear on the previous year's 1099-K but the next year’s month-end statement.
• Third-party settlement amounts: if your business uses multiple payment processors or third-party platforms, some transactions might be reported under another 1099-K, causing differences in totals.

How can I reconcile the discrepancy?

1. Compare the gross sales in your 1099-K with the total before deductions in your statements. Look for the gross amount before fees, refunds, and adjustments in your month-end reports.
2. Review chargeback and refund activity: cross-check any chargebacks or refunds processed during the year, as they affect net deposits but not the 1099-K total.
3. Account for processing fees: identify all processing fees deducted in your statements to see the difference between gross and net amounts.
4. Verify the reporting period: ensure that transactions occurring at the end of the year are reported correctly on both records.
5. Consult with your accountant: if you cannot reconcile the numbers, your tax professional can help clarify any discrepancies.