You open your mailbox (or email) in January and find the Shopify 1099-K form from Shopify Payments. You look at the number in Box 1a (Gross amount) and your heart stops.
Panic sets in. You think Shopify made a mistake. You think you have to pay tax on that huge number. Stop. The form is correct, but your understanding of it might be wrong.
Here is the definitive Shopify 1099-K guide for 2026. We explain why the numbers don’t match your bank account, the new $20,000 threshold, and how to “clean” this number so you don’t overpay the IRS.
The 2026 Threshold Update: Who Gets a Form?
For the 2025 tax year (filed in 2026), the IRS has stabilized the reporting rules under the “One Big Beautiful Bill Act” (OBBBA).
You will ONLY receive a Form 1099-K from Shopify if you meet BOTH conditions:
- Gross Payments exceed $20,000 USD.
- AND you had more than 200 transactions.
Note: If you sold $100,000 but only had 50 transactions (high ticket items), you might NOT get a form from Shopify TPSO. However, credit card processors often report anyway.
“I didn’t get a form. Do I still pay taxes?”
YES. This is the most common myth. The 1099-K is just an “informational” paper. The IRS requires you to report 100% of your income, whether you sold $500 or $5,000,000. If you don’t report it and get audited, the penalties are severe.
Why The 1099-K Number is “Wrong” (Gross vs Net)
The number in Box 1a is your Gross Payments. This is NOT your profit. It is not even your Revenue. It includes things that are technically “not yours”:
- Sales Tax: If Shopify collected $10,000 in sales tax from customers, that money is included in Box 1a. You merely acted as a tax collector.
- Shipping Fees: The money the customer paid for shipping is included.
- Refunded Orders: If a customer paid $100 and you refunded it later, the original $100 is OFTEN still in the Gross number (depending on how the refund was processed).
- Shopify Fees: The 2.9% + 30¢ fees are NOT deducted from this number.
The Trap: If you simply copy the number from Box 1a into your tax return software as “Income,” you will pay taxes on the sales tax you collected. You will pay taxes on shipping. You will pay taxes on fees.
How to Reconcile (The “Bridge” Method)
You need to “bridge the gap” between the Shopify 1099-K gross number and your actual taxable Net Profit.
- Start with Box 1a (Gross): Enter this as “Gross Receipts” on your Schedule C.
- Deduct Sales Tax: On Schedule C (under “Taxes and Licenses” or “Other Expenses”), deduct the exact amount of sales tax you remitted to the states.
- Deduct Refunds: List “Returns and Allowances” to remove the refunded money.
- Deduct Fees: List Shopify fees, app fees, and shipping costs as business expenses.
Pro Tip: Use a tool like [Link My Books] to automatically calculate these deductions so they match your 1099-K exactly.
The “Double Trouble”: Shopify + PayPal
Be careful if you use multiple payment gateways.
- Shopify Payments is one TPSO.
- PayPal is a separate TPSO.
If you sold $30,000 on Shopify Payments and $30,000 on PayPal:
- You will get TWO separate 1099-K forms.
- Do NOT combine them incorrectly or double-count.
- Treat each form as a separate “income stream” source in your accounting software, or reconcile them together if your bookkeeper allows.
Where to Find Your Form in Shopify
Shopify doesn’t mail these anymore; they are digital.
- Log in to your Shopify Admin.
- Go to Finances > Payouts.
- Click on Documents.
- Look for “1099-K” for the relevant tax year.
Summary: Don’t Panic, Just Deduct
The Shopify 1099-K is designed to scare you into reporting income, but it is a “Gross” instrument. Your job is to act as a filter. Take the Gross number, filter out the sales tax, shipping, and fees, and only pay tax on what’s left.
Struggling to separate fees from profit? Read our comparison of A2X vs Link My Books to automate this. Also, check our guide on Shopify Tax Apps to stop overpaying state taxes.