With the return of Form 1099-NEC, the question of whether to use Form 1099-MISC or Form 1099-K now largely changes to whether you should use Form 1099-NEC or Form 1099-K.
What is Form 1099-NEC?
Form 1099-NEC is the form you use to report nonemployee compensation. You send this form to the IRS, the state, if applicable, and the contractor or other nonemployee.
Learn more about Form 1099-NEC here.
What is Form 1099-K?
If you receive payments via a payment card or third-party network, then you will receive a Form 1099-K from the financial institution.
According to the IRS:
You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:
-
- from payment card transactions (e.g., debit, credit or stored-value cards), and/or
- in settlement of third-party payment network transactions above the minimum reporting thresholds of –
- gross payments that exceed $20,000, AND
- more than 200 such transactions
Tip: This does not include ACH transactions using third-party payment processes, such as PayPal or Stripe, because they act like a credit or debit card with added security. However, services like Venmo and Cash App do require that you report payments via a 1099-NEC or 1099-MISC if those payments meet the requirements.
Is Form 1099-K Relevant for Nonemployees?
If you pay your nonemployees via third-party payment avenues, then you may not need to send them Form 1099-NEC if the situation meets the criteria. If a contractor receives $20,000+ in payments from your business across 200+ transactions, the financial institution you go through will send them a Form 1099-K. In this case, you would not send them a Form 1099-NEC. However, most contractors are paid by the job or at least weekly, which totals to about 52 payments per year, meaning nonemployees will rarely meet this threshold and you will need to file Form 1099-NEC for each contractor.
Tip: If you don’t provide the third-party payment processor with your contractors’ information, they will not report their income for you, so we recommend becoming familiar with Form 1099-NEC.
Is Form 1099-K Relevant for Businesses?
Form 1099-K is still relevant to your business because you likely accept credit and debit card payments as well as other third-party payments. This is very important for businesses that sell products online and in stores, as well as those who sell services. Your customers will not send you a tax form, but the financial institution involved will send you a Form 1099-K to show your gross income through them.
What do you do with Form 1099-K?
If you receive Form 1099-K, then you need to ensure the gross amount it reports matches your records for the associated payment. You must report that income to the IRS appropriately. Also, keep a copy for Form 1099-K for your records.
Which Form Do You Need?
As a business owner or accountant, you will likely file Form 1099-NEC and receive Form 1099-K.
File your 1099-NEC forms with eFile360. Sign up for a free account at this link.