Please clarify what form you received that reports the payments you received. Why are you receiving pre-paid service payments?
I operate a mortgage branch and I am a w-2 employee however run a P&L for my group of 3 loan officers. In order to collect funds upfront for credit reports and appraisal orders I decided to utilize square credit card service to make for a more convenient option to assist my clients. When they pay for the credit report or appraisal I then credit them back for those payments at closing. There is no profit being made. I received a 1099-K
You will need to report that. The IRS has a copy and they have no idea that you didn't pocket any of that money so you need to put it on the tax return so that they can understand what you did.
You'll enter the 1099-K just as you received it. The system will set you up as having a small business which is correct for purposes of your tax return. It will enter all of the income from your 1099-K as taxable. Then you will need to enter a matching expense into the business section that reduces your income to zero. That will match the actual reality of the situation.