Stripe, Square, and PayPal deposits: recording them so your books match your 1099-K

If you take cards through Stripe, Square, PayPal, or Shopify, two documents describe the same money, and they never agree. The bank statement lists deposits. The Form 1099-K, if you receive one, lists a larger number. Neither is wrong. They measure different things, and the business’s books have to explain the distance between them.

This is one of the most common faults in books that owners keep themselves, because the accounting software makes the wrong entry the easy one: a deposit arrives in the bank feed, and one click records it as sales.

What the 1099-K actually reports

The form’s main figure is box 1a, and the IRS defines it without ambiguity:

“Gross amount” means the total dollar amount of total reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, shipping amounts, or any other amounts.¹

So box 1a includes the sale you later refunded in full. It includes the processor’s own fee. It includes sales tax and shipping you charged, and tips left on a card. The processors say the same in their own words. Stripe lists “Stripe processing and conversion fees,” “Taxes,” and “Refunded charges” as part of the total, and Square notes its form is not reduced for “Refunds or chargebacks.”²³

The bank sees none of that, because the processor has already taken its share: “Square’s processing fees are deducted before funds are transferred to your linked bank account,” and on Stripe a refund or dispute means “funds are also deducted from the payments balance.”⁴⁵

One month, worked through

Take an online shop on Stripe’s standard US rate of 2.9% plus 30¢ per card payment.⁶ In one month it takes 120 payments for $12,000 of goods, plus $960 of sales tax. It refunds two orders.

One month through the processorExample

Charged to customers 120 payments; this is what the 1099-K counts	12,960.00
Processing fees 2.9% of 12,960.00, plus 120 × 0.30	−411.84
Refunds to customers two orders, tax included	−216.00
Paid out to the bank this is what the bank feed shows	12,332.16

Now compare two ways of putting that month into the books.

The same month, two sets of books

Account	From the bank feed	Recorded in parts
Sales	12,332.16	12,000.00
Refunds	—	−200.00
Processing fees an expense	—	−411.84
Sales tax owed a liability, not income	—	944.00
Cash received	12,332.16	12,332.16

The bank-feed version is wrong in four ways at once. Sales include $944 that belongs to the state. The refunds are invisible. A $411.84 expense has vanished. And nothing in the books equals $12,960, which is the number on the form.

For a service business that charges no sales tax, the error runs the other way: the deposit understates sales by exactly the fees and refunds. Either way the reported figure is lower than the 1099-K, and the IRS runs a matching program that “compares the information reported by third parties to the information reported on your return to identify potential discrepancies.”⁷

How the right-hand column reaches the tax return

The IRS’s guidance on the form is to start from the gross figure and deduct from there: fees, refunds, and the rest “are not taxable income. You can deduct them from the gross amount.”⁸ Books recorded in parts give a preparer each of those numbers directly. The IRS adds a caution that owners rarely hear: the form “may not include all the receipts and it may include items that are not included in your receipts (such as sales tax).”⁹ It is a cross-check on your records, not a substitute for them.

On sales tax: whether collected tax is left out of gross receipts or included and then deducted depends on how your state imposes it, and the Schedule C instructions treat the two cases differently.¹⁰ That is your preparer’s call. Your part is to have the tax in its own account, so that either treatment is a matter of reading off a number.

What each processor charges

Fees are the largest piece of the gap, and they are easy to estimate once you know the rate. These are the standard published US rates for the most common cases. Each processor has more tiers than this, and negotiated rates differ.

Standard US card ratesAs published, October 2026

Processor	Online	In person
Stripe	2.9% + 30¢	2.7% + 5¢
Square Free plan	3.3% + 30¢	2.6% + 15¢
Shopify Payments Basic plan	2.9% + 30¢	2.6% + 10¢
PayPal	2.99% + 49¢ cards; 3.49% + 49¢ for PayPal Checkout	2.29% + 9¢ QR code

Three things in the fine print change the bookkeeping.

• A refund does not bring the fee back. Stripe: “processing fees from the original transaction aren’t returned.” PayPal and Shopify say the same.¹¹ A refunded sale is not a wash. It leaves a small expense behind, and box 1a still counts the original charge.
• Disputes come out of the same balance. Stripe “debits your Stripe balance for the disputed amount plus a dispute fee” of $15. Square charges no dispute fee but holds the disputed funds.¹² A lost dispute is recorded like a refund, with the fee as an expense.
• A reserve is not a cost. When PayPal holds back part of your balance, “the money is still yours, but you can’t use or withdraw it for now.”¹³ In the books it is money owed to you, not an expense.

The method: record the payout in its parts

Every accounting program can do this, and the idea is the same in all of them. Give each processor its own holding account, sometimes called a clearing account. Sales, tax, refunds, and fees go into it as they happen. Payouts move money from it to the bank. What is left in it at any moment is what the processor still holds for you.

1. Record sales at the amount charged, split between income and sales tax, into the processor’s holding account.
2. Record refunds and lost disputes against sales and sales tax, out of the same account.
3. Record fees as an expense, out of the same account.
4. Record each payout as a transfer from the holding account to the bank. A transfer is not income, so nothing is counted twice.

You do not have to do this one sale at a time. The processor’s own report for each payout already lists the four parts; Stripe’s payout reconciliation report exists to “match the payouts you receive in your bank account with the batches of payments and other transactions that they relate to.”¹⁴ One entry per payout, or one per day or month from the summary report, is enough.

In QuickBooks Online the built-in way is a bank deposit that lists the sales and then the fee: in the deposit, “enter the amount fee as a negative number.”¹⁵ Intuit’s connectors for Stripe and Square automate the same structure: the app “records a bank deposit that automatically links with the individual sales transactions and fees.”¹⁶ If you use a connector, check once that it is really doing this, by looking for a fee expense and comparing one month’s sales with the processor’s report.

The monthly check

Four numbers that must agreeEach month

1. Amount charged to customersProcessor’s report = sales + sales tax + tips in your books, before refunds.
2. FeesProcessor’s report = the fee expense in your books.
3. PayoutsProcessor’s report = deposits on the bank statement.
4. Balance still heldProcessor’s ending balance = the holding account in your books.

If the fourth one agrees, the first three almost always do.

The 1099-K is built for this comparison. Besides the annual total, boxes 5a through 5l give “the gross amount of the total reportable payment transactions for each month of the calendar year.”¹ If your books tie to the processor each month, the form will tie in January without any work. If they do not, the monthly boxes show exactly which month to look at.

December needs its own check

Sales in the last days of December are usually paid out in January. The bank puts them in the new year. The form may not. The IRS’s rule is that “the dollar amount of each transaction is determined on the date of the transaction,”¹ but the processors each describe their cutoff differently.

Which year a sale lands in

Processor	Its 1099-K counts a sale by
Square	The transaction date, in UTC
Shopify Payments	The date it posted to your account, in UTC, “not when the order was placed”
Stripe	The date the funds became available in your Stripe account

Two practical consequences follow. Use the processor’s own 1099-K report, not your sales report in local time, when you check the year’s total; Square’s advice is to run its report with the reporting hours set to UTC.³ And expect a small, explainable difference at each year-end. A difference you can trace to three days in late December is fine. One you cannot trace is the kind worth finding before someone else does.

Who gets a 1099-K at all

Since the 2025 tax law, a third-party payment network has to file the form only when a business receives more than $20,000 across more than 200 transactions in the year, and the IRS confirms the change was made retroactive.¹⁷ All four processors above describe that as their own rule. Several states set a much lower bar for their residents, including $600 in Massachusetts, Maryland, Vermont, Virginia, and the District of Columbia, and more than $1,000 across four or more transactions in Illinois; the processors publish current lists, and those lists do not always agree with one another, so check your processor’s.³¹⁸

Not receiving a form changes nothing about the income. It only removes one cross-check, which is a reason to keep the monthly one.

Two newer details are worth a line each. The 1099-K for 2026 adds a box 1c for tips charged to cards, which remain inside box 1a even though they pass through to staff.¹ And if a form is wrong, or includes personal payments, the IRS’s instruction is to ask the issuer for a corrected one: “Don’t contact the IRS. We can’t correct your Form 1099-K.”⁸

Selling through a marketplace

Marketplaces add one more wrinkle. Under state marketplace-facilitator laws, the marketplace itself is generally responsible for collecting and paying sales tax on sales made through it.¹⁹ That tax was never yours to hold, so it should not appear in your books as tax you owe.

Whether it appears on the marketplace’s 1099-K varies. Etsy, for example, says the tax it collects and remits for you “won’t be reflected in your 1099-K,” while tax you set up yourself with its sales tax tool is included.²⁰ Read your marketplace’s explanation of its form before trying to tie to it.

Sources

1. Internal Revenue Service, Instructions for Form 1099-K, Rev. December 2026.
2. Stripe, 1099-K tax forms.
3. Square, Manage your Form 1099-K. Modified April 23, 2026.
4. Square, Learn about Square fees. Modified April 23, 2026.
5. Stripe, Balances and settlement time.
6. Stripe, Pricing and fees; Shopify, Pricing; PayPal, Merchant and business fees, last updated October 1, 2026. Square’s rates are in source 4.
7. Internal Revenue Service, Topic no. 652, Notice of underreported income (CP2000). Page last reviewed October 9, 2026.
8. Internal Revenue Service, What to do with Form 1099-K. Page last reviewed July 27, 2026.
9. Internal Revenue Service, Publication 334, Tax Guide for Small Business, 2025 edition.
10. Internal Revenue Service, Instructions for Schedule C (Form 1040), 2025, lines 1, 2, and 23.
11. Stripe, Refund and cancel payments; Shopify, Shopify Payments refunds; PayPal fees page in source 6.
12. Stripe, How disputes work; Square, Manage payment disputes.
13. PayPal, What are reserves?
14. Stripe, Payout reconciliation report.
15. Intuit, Record and make bank deposits in QuickBooks Online. Updated August 3, 2026.
16. Intuit, Connect and manage Stripe transactions in QuickBooks Online, updated September 21, 2026, and the equivalent article for Square.
17. Internal Revenue Code section 6050W; Internal Revenue Service, Form 1099-K FAQs: general information, updated October 23, 2025.
18. Illinois Department of Revenue, Publication 110, January 2026; PayPal, Will PayPal report my sales to the IRS?; Stripe, 1099-K form state requirements.
19. Streamlined Sales Tax Governing Board, Marketplace facilitator state guidance; California Department of Tax and Fee Administration, Tax guide for the Marketplace Facilitator Act.
20. Etsy, How is the total on my 1099-K calculated? and What do I need to know about my 1099-K tax form?
21. Shopify, Form 1099-K tax reporting with Shopify Payments; Stripe, 1099-K forms issued by Stripe: reconciliation report. These, with source 3, are the sources for the year-end table.