How to ensure CashApp Taxes properly handles my 1099-K correction for money transfers - PayPal mistake

I'm in a frustrating situation with a 1099-K that PayPal sent me by mistake. Basically, I was helping my brother who lives abroad by purchasing some electronics for him, and he later reimbursed me for the costs. The total came to about $6,700 throughout last year. Well, PayPal decided this activity meant I was running a business and sent me a 1099-K incorrectly stating I sold computer equipment! I've heard that on this year's tax forms there should be a way to indicate the 1099-K was issued in error. I use CashApp Taxes for filing and I'm trying to figure out if I'm handling this correctly. When I entered the 1099-K info, I checked the box saying none of the money is taxable (the help text mentioned money from family/friends as an example that wouldn't be taxable). After entering everything and clicking continue, it shows $0 for my 1099-K amount. But when I go back to the main screen, there's nothing showing under "other income" section which makes me nervous. Am I doing this right? Should I be seeing something different on the main screen? Should I switch to different tax software or maybe file by hand instead? Don't want to mess this up and have the IRS thinking I earned an extra $6,700 that I actually didn't!

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18 comments

Mae Bennett

•8M

I've dealt with this exact situation before as a tax preparer. What you're experiencing with CashApp Taxes is normal behavior. When you indicate that the 1099-K amount isn't taxable income (which is correct in your case since these were just reimbursements from your brother, not actual income), the software correctly recognizes there's no taxable amount to report. The reason you don't see anything under "other income" is because technically there IS no other income to report. The software is handling it correctly by acknowledging the 1099-K exists but that it doesn't represent taxable income. The IRS will be able to match the 1099-K they received from PayPal with your return correctly. If you want to be extra cautious, you can add a note in your tax return explaining the situation, though it's not strictly necessary. The checkbox you marked is specifically designed for situations like yours where the payment processor incorrectly issued a 1099-K.

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Mae Bennett

•8M

The process would be exactly the same for Venmo since they're also required to issue 1099-Ks under the same rules as PayPal. The important part is marking that the funds weren't taxable income. As for audit concerns, while I can't promise anything, this is actually a very common situation the IRS is encountering with the newer 1099-K reporting thresholds. If you do get any questions, just be prepared to explain that these were reimbursements, not income. Having some documentation of what you purchased for your brother could be helpful, but most people in this situation don't face additional scrutiny.

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Melina Haruko

•8M

Just wanted to share that I went through something similar with PayPal sending me incorrect 1099-Ks. I found an incredible tool that helped me organize my documentation and properly identify which transactions were actually just friends paying me back vs actual income. It's called taxr.ai (https://taxr.ai) and it analyzed my PayPal statement to categorize everything properly. The tool basically went through all my transactions and helped me create a document that clearly showed which payments were reimbursements vs actual income. Was super helpful when filing with TurboTax because I could confidently check that box saying the 1099-K wasn't taxable income. Definitely worth checking out if you have a lot of transactions to sort through!

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Melina Haruko

•8M

The tool works great with bank statements! You can upload your bank statement PDFs and it will analyze the transactions to help distinguish between personal reimbursements and actual business income. It looks for patterns in the transactions and helps categorize them properly. It doesn't need to connect directly to your PayPal or bank accounts. You just upload PDF statements or export transaction histories as CSV files. No need to give access to your actual accounts - it just analyzes the documents you provide. I was hesitant too but was relieved when I saw it's just document analysis rather than account access.

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Reina Salazar

•8M

Just wanted to update after trying taxr.ai for my similar PayPal 1099-K issue. It actually worked really well! I uploaded my PayPal transaction history and it organized everything into clear categories showing which payments were just friends paying me back vs actual business income. Made filing SO much easier since I had proper documentation showing why certain 1099-K amounts weren't actually taxable. The report it generated made me feel much more confident when checking that "not taxable" box in CashApp Taxes!

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Saanvi Krishnaswami

•8M

If you're struggling with getting this resolved, I'd recommend calling the IRS directly to get official guidance. I know people dread calling them, but I found a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 20 minutes when I had a similar 1099-K issue last year. They have a demo video of how it works here: https://youtu.be/_kiP6q8DX5c I was honestly shocked it worked because I had spent DAYS trying to get through on my own. The IRS agent confirmed exactly what to do with my incorrect 1099-K and how to document it properly. They told me that as long as I checked the box indicating the 1099-K wasn't taxable income and kept my own records of why (reimbursements, not sales), I should be fine.

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Saanvi Krishnaswami

•8M

It uses an automated system that navigates the IRS phone tree and waits on hold for you. When it finally gets through to an agent, it calls your phone so you can talk directly with them. It's not some magical line-cutting service - it just does the waiting for you so you don't have to sit on hold for hours. I was skeptical too! I've spent literally entire days trying to get through to the IRS. The difference is that this service has multiple lines calling simultaneously and then transfers you when one gets through. It's completely legitimate - you're still talking directly to the actual IRS, not some third-party.

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Mason Lopez

•8M

OK I have to eat my words and apologize for being so skeptical. I tried Claimyr yesterday out of desperation after getting another 1099-K notice. It actually worked exactly as described and got me through to an IRS agent in about 25 minutes! The agent confirmed that checking the "not taxable" box in CashApp Taxes was exactly the right approach for money that was just reimbursements from family. They also suggested keeping some basic documentation of the purchases I made for my sister just in case there are any questions later. Definitely worth it to get official confirmation instead of stressing about doing it wrong.

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Vera Visnjic

•8M

Yes, CashApp Taxes does have an option to add explanations or notes to your return. When you're in the final review stage before filing, there should be a section for "Additional Information" or "Notes" where you can add explanations for unique situations. For your Etsy situation, you'd want to note that these were personal items sold at a loss, not a business activity, which is similar to the original poster's reimbursement scenario. CashApp Taxes isn't as robust as some paid options, but it handles most common situations pretty well if you know where to look for these features.

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