Updated October 16, 2026. Quick answer: On Form 1099-K (Rev. December 2026), box 1b shows the gross amount of card not present transactions, such as online, phone and catalogue sales. Box 2 shows the merchant category code and box 3 shows the number of payment transactions, not counting refunds. All three are information boxes on the recipient copy; the form’s own instructions send you to the filer with questions about them.
What the three boxes report
Box 1b follows the box 1a gross total on the recipient copy, the new tip boxes 1c and 1d come next, and boxes 2 and 3 follow them. The recipient copy describes each one in a sentence.
| Box on the December 2026 form | What the recipient copy says it shows |
|---|---|
| 1b Card Not Present transactions | “Shows the aggregate gross amount of all reportable payment transactions made to you through the PSE during the calendar year where the card was not present at the time of the transaction or the card number was keyed into the terminal.” |
| 2 Merchant category code | “Shows the merchant category code used for payment card/third party network transactions (if available) reported on this form.” |
| 3 Number of payment transactions | “Shows the number of payment transactions (not including refund transactions) processed through the payment card/third party network.” |
The first of those is the one people ask about. Box 1a, covered on a separate page in the 1099-G and 1099-K boxes guide, is the overall gross figure; box 1b is the part of the activity where the card was not in front of the terminal.
Box 1b: card not present
The recipient copy gives examples: “Typically, this relates to online sales, phone sales, or catalogue sales.” It also carves out third party networks: “If the box for third party network is checked, or if these are third party network transactions, Card Not Present transactions will not be reported.” So an empty box 1b does not by itself mean you had no online sales; if your form is a third party network form, the form says card not present transactions are not reported on it.
The payer instructions use the same description and the same gross definition as box 1a: “Enter in box 1b the gross amount of the total reportable payment card/third party network transactions for the calendar year where the card was not present at the time of the transaction or the card number was keyed into the terminal.” Because the gross definition applies, “without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, shipping amounts, or any other amounts”, box 1b also ignores refunds and fees.
Box 2: merchant category code
A merchant category code is the code the payment card industry uses to classify a business. The payer instructions say “Enter the four-digit merchant category code (MCC) used by the payment card industry to classify the payee for the payment card transactions reported on this Form 1099-K.”
Two payer-side notes help explain why your box 2 may be blank or may not match your trade. First, “If you or the entity on whose behalf you are filing is a TPSO or does not use any industry classification system for its payees, you should not complete this box.” Second, a payee with more than one kind of receipt can get either of two forms of reporting. The instructions say “If a payee has receipts classified under more than one MCC, you may either:” “File separate Forms 1099-K reporting the gross receipts for each MCC, or” “File a single Form 1099-K reporting total gross receipts and the MCC which corresponds to the largest portion of the total gross receipts.” That is why two sellers with similar businesses can see different codes or a different number of forms. A business owner can read the form 1099-K against the Schedule C they file; see the Schedule C page for the return-side walk-through.
Box 3: number of payment transactions
The payer instructions are short: “Enter the number of payment transactions (not including refund transactions) processed through the payment card/third party payer network.” This is a count and not a dollar amount, and the parenthetical removes refund transactions from it.
Illustration, not an IRS example: if box 1a showed $9,000 and box 3 showed 300 transactions, then $9,000 divided by 300 = $30 is the average size of those sales. Neither the recipient copy nor the instructions report an average sale size. It is simply a way to see whether the count and the gross total look consistent with the kind of business you ran.
The December 2026 payer instructions test a different count for third party networks: “The total number of such transactions exceeds 200.” That is a payer reporting condition, described with the dollar condition on the 1099-K threshold page.
What to do when a box looks wrong
The recipient copy sends questions to the filer: “If you have questions about the amounts reported on this form, contact the FILER whose information is shown in the upper-left corner on the front of this form.” For the return-side treatment of the amounts, the form says “See the separate instructions for your income tax return for using the information reported on this form.” If the income is self-employment income, the tax on it is explained on the self-employment tax page.
Edition and box numbers
The primary read for this page is the December 2026 revision of Form 1099-K (Copy B, the recipient copy) and the December 2026 Instructions for Form 1099-K, which are the revisions for tax year 2026. Boxes 1b, 2 and 3 appear in both revisions of the instructions. The March 2024 instructions list the box 1b entry, then “Box 2. Merchant Category Code” and “Box 3. Number of Payment Transactions”, while the December 2026 form adds the tip boxes 1c and 1d between box 1b and box 2. The IRS site was serving the December 2026 revision on 2026-10-16, and the March 2024 revision of the instructions is the previous one. Check the revision printed on the form you received, because the boxes and the payer rules differ between revisions.
Common mistakes
- Reading a blank box 1b as proof of no online sales. The form says that on a third party network form, “Card Not Present transactions will not be reported.”
- Expecting box 2 to match your own description of your business. The instructions let a filer “File a single Form 1099-K reporting total gross receipts and the MCC which corresponds to the largest portion of the total gross receipts.”
- Counting refunds in box 3. The box counts “payment transactions (not including refund transactions)”.
Related: the 1099-K threshold page, Schedule C (Form 1040), self-employment tax explained, and 1099 basics when you hire help.
Sources
- Form 1099-K, Payment Card and Third Party Network Transactions (Rev. December 2026), recipient copy: https://www.irs.gov/pub/irs-pdf/f1099k.pdf
- Instructions for Form 1099-K (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099k.pdf
- Instructions for Form 1099-K (Rev. March 2024): IRS archived PDF (irs.gov)
Read from the IRS documents linked above on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.