I got another reply from Webflow support with further clarification this morning:
Thanks for reaching out, and I’m happy to help clarify!
I can see there’s some confusion about your 1099-K, and I’m more than willing to clear things up for you.
The IRS requires credit card payments to be reported on the 1099-K form, however this form does not imply that any amount was paid directly to you. From the IRS:
- The Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports the gross amount of reportable transactions for the calendar year to the IRS.
- The “gross amount” of reportable transactions means the total unadjusted dollar amount of aggregate payment transactions for each participating payee.
In short: the amount on your 1099-K is not interpreted by Webflow or the IRS as your earned revenue.
You can think of it as a list of card transactions for your clients. Any amounts paid directly to Webflow [including fees] is usually filed during taxes as an expense, which should relieve you of any tax burden for money you did not receive. Here’s a more clear example of how 1099-Ks could be used to report taxes.
Julie has one client, Johan. Johan purchases the Annual CMS Site Plan for $192 in January of 2019, using our Client Billing feature. Julie receives a 1099-K showing $192 for January, although she never set a profit amount for the website and received no funds. When Julie files her taxes, she reports the $192 charged to Johan’s card and uses her Webflow invoices to show the payments were sent to Webflow as a business expense.
I’ve created a visual representation here:
Because your 1099-K shows the amount your clients paid via credit/debit card, your Webflow invoices will show where the money went (to Webflow). You can view these directly from each project’s Billing Settings – for example:
The IRS requires this system of reporting as a way to “follow the money” – from the client’s original payment to the final destination at Webflow [minus profit that is paid out to you]. The 1099-K is not interpreted as money you necessarily owe taxes on, but rather the amount your clients paid via their cards. Any amount that was not paid directly to you can be claimed as a business expense. I hope this helps, and although Webflow cannot provide tax advice, I would recommend reaching out to a tax professional in case of questions about how to use a 1099-K with your tax reporting requirements.
Please let me know if you have other questions – I’m always happy to help!
CC @Tryit @itsmeblake @aaronocampo