If you've received payments on Dwolla as a self-employed individual or a freelancer, you may have received a 1099-K form from Dwolla at the end of the year.
If you're a sole proprietor, you'll report the income on Schedule C (Form 1040). You'll need to include the total amount of payments you received through Dwolla on Line 1 (Gross receipts or sales). You should also include any expenses you incurred while conducting your business on Schedule C.
As a sole proprietor, you'll need to pay self-employment tax on your net earnings. You'll need to use Schedule SE (Form 1040) to calculate your self-employment tax.
Although personal transactions on Dwolla (such as personal payments to friends and family) are permitted, they are not regarded as "payments for goods and services." This is significant because payments made for products and services are subject to the 1099-K third-party payment network reporting requirement. It does not apply to personal payments made to relatives and friends through payment networks that were gifts or other types of payments.
For instance, transactions made through a personal Dwolla account during the year won't be included on a 1099-K. This personal Dwolla account is intended for noncommercial use, such as transferring money to a friend to split the cost of a dinner. But, you will probably get a 1099-K if you have a Dwolla for Business account.