How are purchases made with gift cards handled in the 1099-K form?

Accounting & Taxes
1

I’ve read documentation about how Shopify accounts for gift card balances (a liability when issued, recouped when used-- makes sense) but I can’t find any information about how this factors into the 1099-K form for tax purposes. I want to make sure we’re not going to be on the hook for income that never actually happened.

Let’s say I issue a gift card to a customer with a nominal value of $1,000. No purchase, just issued directly, so there’s no actual payout or anything. Then the customer “spends” the $1,000. (Again, no payout, no actual money involved.) My question is, will the 1099-K form I get from Shopify show $1,000 more in the " Gross amount of payment Transactions card/third party network transactions" box than if that “payment” had never happened? And if so, how can I deal with that, since that money never actually existed?

2

I chatted with a support person and got the answer: it’s treated as income on your 1099-K form (despite there being no actual income) and there’s no simple way to automatically account for that. You have to remember to subtract the value of those “purchases” on a separate line when doing your taxes. Despite this, they suggest issuing gift cards for things like store credit, with no mention of this complication with the accounting. Oh well.