2 — Payer Direct Sales Indicator Updated for tax year 2025

What this line means

A checkbox indicating whether the payer made $5,000 or more in direct sales of consumer products to you for resale. This applies to people in direct sales businesses (sometimes called network marketing or multi-level marketing). If this box is checked, you are considered a buyer-reseller, not an employee, and the income is reported on Schedule C.

Does this apply to you?

• You participate in a direct sales or network marketing company (Amway, Herbalife, Mary Kay, etc.) and purchased $5,000 or more of products for resale
• You received a 1099-NEC with Box 2 checked

Easy to overlook

This box means you are treated as self-employed When Box 2 is checked, the IRS considers you a statutory nonemployee. You report income and expenses on Schedule C, you owe self-employment tax, and you can deduct business expenses like inventory costs, shipping, and marketing materials. Many direct sellers do not realize they are running a business in the eyes of the IRS. ¹ [SOURCE: IRS 1099-NEC instructions — Box 2]

Your cost of goods sold offsets the income The $5,000+ in products you purchased is your cost of goods sold. You report the resale revenue on Schedule C line 1 and subtract the cost of products on line 4 (calculated in Part III of Schedule C). Only your profit is taxable. Filers who report the full resale amount without subtracting product costs overpay significantly. ² [SOURCE: General filing pattern — direct sellers misreporting income]

Watch out for this

Ignoring the 1099-NEC entirely because “it is just a direct sales side thing.” The IRS receives a copy. If you purchased products for resale and did not file a Schedule C reporting the activity, the IRS will match the 1099-NEC to your return and send a notice for the full amount as unreported income — without any deduction for the products you bought.

Related lines on your return

• Box 1 — 1099-NEC — Nonemployee compensation (reports the dollar amount of payments)
• Line 1 — Schedule C — Where resale income is reported
• Line 4 — Schedule C — Cost of goods sold (where the cost of products purchased for resale is deducted)