My understanding is that 1099-K is used for reporting “card transactions” (and similar). itch.io payouts are done through PayPal’s “Mass Pay” API which doesn’t correlate to individual card transactions but instead a lump payment on the “royalty” you received for transactions facilitated by us.
As the merchant of record for the sale of your goods we are legally obligated to report this income. I believe in this case PayPal is not correct in issuing the these documents, but my understanding may be outdated. You may want to communicate with a PayPal account rep to ask them more about the conditions they have for generating those documents on your account.
If you are using our “PayPal Marketplaces” integration with “Direct Payments” then PayPal should be issuing a 1099-K, and you will receive no tax document from us.