1099-K for miscategorized non-business transactions between friends

[cjbowyer]

My husband purchased an item for his friend who lives overseas and mailed it to him (it was a limited edition figurine from an exhibit at the art museum my husband works at). His friend reimbursed him for the figurine and shipping through PayPal, but did not select "friends and family." My husband refunded the transaction, but I think his friend again sent the money as "goods and services" even after my husband explained the problem.

Now we have a big 1099-K that lists gross payment transactions and I don't know what to do. I can't be sure if this 1099-K is only because the transactions under my husbands account exceeded $600 or if it's because PayPal has identified my husband as a business merchant. I am afraid to not include the 1099-K because I don't want to cross the IRS, but also we should not owe any taxes since we did not make any income on this and do not run a business or side gig. PayPal hasn't been helpful -- has anyone here had a similar experience or can give me some advice? thank you in advance!

[PayPal_Meghan]

Hello @cjbowyer,

Thanks for visiting the Community! 

I'm sorry to hear about the confusion this has caused. PayPal is required to report all Goods and Services transactions to the IRS once certain thresholds are met. The thresholds can vary by state. If you or your husband received a 1099-K for 2021, that means the account met the Goods and Services transactions threshold. To find out if the information needs to be reported when filing taxes, you will want to speak with a tax professional. I also recommend including a transaction statement, which includes refunds, when you speak with the tax professional. 

I hope this helps! 

- Meghan