As of January 2022, the IRS requires third-party payment processors (for example, Wave, Stripe, Square, and PayPal), online marketplaces (Amazon, eBay, Etsy, etc.), and credit card companies to provide a Form 1099-K to all businesses who process over $600 in 2022.
You can find more information on 1099-K forms on the IRS website: Understanding your Form 1099-K.
Most third-party payment processors deduct transaction fees (also known as merchant fees) from the gross payments made by your customers. You're then left with the net amount in your Wave account, and a fee you need to account for.
Account for transaction fees
If you process payments with Wave Payments, Wave takes care of the bookkeeping automatically. Learn about automated bookkeeping with Wave Payments.
Say for example, you send an invoice to your customer for $100, and they pay through PayPal. If PayPal deducts $3 in merchant fees, you receive a deposit of $97 in your bank account. If your bank account is connected to Wave, or you have uploaded a bank statement, you have already imported the transaction for $97. You now have an outstanding invoice for $100.
You need to mark that invoice as paid, and account for the merchant fee.
- Log in to your account at waveapps.com.
- In the left navigation menu, click Accounting > Transactions and locate the payment transaction.
If you haven’t set your bank transactions to import automatically, you can add a transaction manually. Learn how to add an income transaction.
- Click the arrow to the right of the transaction, then click Edit more details.
- Select Split transaction.
You will now see the original amount (the net payment of $97), and two split amounts below.
- Enter the gross payment amount of $100 in the first Split amount field. Enter the transaction fee of $3 (the amount Paypal takes before processing your payment) in the second Split amount field.
- Click the Category field, then select Processing fees under Discounts and Fees.
The second Split amount will now have a (-) beside it, indicating a negative amount.
If you don’t see a processing fees account under Discounts and Fees, you will need to create one. Here’s how:
- Click Add a new category at the bottom of the Category dropdown menu.
- In the Account Type dropdown, select Payment Processing Fee, under Expense.
- In the Account Name section, name it something like Processing Fees.
- Enter an optional Account ID and Description.
- Click Save.
This account appears under Payment Processing Fee on your Chart of Accounts Expenses page, and under Discounts and Fees on your Transactions page.
- If the paid invoice isn’t already selected in the category of the first Split amount, click the Category field, then select the relevant invoice under Payment Received for an Invoice in Wave.
If you do not have an invoice for this customer, categorize the $100 to the appropriate income account for your business.
- Click Save.