Overview of Form 1099-K, 1099-NEC and 1099-MISC
Updated on October 17, 2023 - 10:30 AM by Admin, TaxBandits
As online transactions continue to surge, the IRS has introduced a series of reforms aimed at boosting the overall transparency of often-overlooked digital payments.
As tax laws have evolved over the years, the introduction of new 1099 forms has added complexity to the situation. Individuals and businesses now face uncertainty about which form to use. As a result, many recipients end up with both forms – Form 1099-K and Form 1099-NEC/MISC from their payers, which leads to reporting discrepancies. Therefore, understanding the differences between Form 1099-K, 1099-NEC, and 1099-MISC is crucial to ensure accurate reporting and compliance with tax regulations.
In this article, we will break down the unique characteristics of each form and clarify when they should be used.
Table of Content:
- What is Form 1099-MISC?
- What is Form 1099-NEC?
- What is Form 1099-K?
- Form 1099-K vs. 1099-MISC vs. 1099-NEC: what’s the difference?
- What kinds of payments shouldn’t be reported using Form 1099-K?
- What should you do if you receive 1099-K in error?
- How do you correct information on Form 1099-K if the gross amount report doesn’t belong to you?
- What should you do if you receive Form 1099-K for personal items sold?
- What should you do if you receive both 1099-K and 1099-MISC for the same payment?
- How to avoid dual-reported income on Form 1099-K and 1099-MISC or NEC?
- Are credit card rewards and cashback considered Taxable income?
- How to file 1099-K, NEC and MISC with TaxBandits
1. What is Form 1099-MISC?
Form 1099-MISC, also known as the Miscellaneous Income return, is issued by businesses or individuals to report certain types of miscellaneous payments, including rent, healthcare payments, awards, prizes, proceeds from fishing boat sales, payments made to an attorney, and other payments amounting to at least $600 or more, made through cash or check during the year.
There are a few exceptions to the $600 minimum:
- At least $10 is made in royalties or broker payments in lieu of dividends or tax-exempt interest.
- Direct sales made of at least $5,000 or more, other than a permanent retail establishment.
- Any payment withheld under the rule of Backup Withholding rules, even if it is less than $600.
2. What is Form 1099-NEC?
1099-NEC is used to report compensation paid to non-employees during the calendar year. Non-employees include independent contractors, self-employed individuals, freelancers, gig workers, and others who are not part of the regular payroll. Recipients will receive 1099-NEC from each individual or business from whom they have received $600 or more in payments for services offered during the year.
3. What is Form 1099-K?
Form 1099-K, the Payment card and third-party network transactions return, is an IRS tax form used by payment settlement entities to report gross reportable transactions for each participant payee through payment card transactions or third-party network transactions.
The payee will receive Form 1099-K from each payment settlement entities under the following condition
If they have received payments through payment cards
The payment cards include credit cards, debit cards, and stored Value cards.
If they have received $20,000 or more payments through a payment app or online marketplace with a total of 200 transactions.
The payments include selling of personal items, goods, rent property or provide services, through the
following platforms.
- Payment apps
- Auction sites
- Online marketplaces
- Real estate marketplace
- Taxi or Car rental platforms
- Ticket exchange or resale sites
- Crowdfunding platforms
- Freelance marketplace
It's important to note that personal payments, such as gifts received for birthdays or sharing rent with a roommate, are not considered taxable income. Therefore, such payments should not be reported on Form 1099-K.
4. Form 1099-K vs. 1099-MISC vs. 1099-NEC: what’s the difference?
Form 1099-K, 1099-NEC, and 1099-MISC may seem similar at first glance, as all three are designed to report payments made to 1099 contractors. If you work as a contractor, it's possible to receive all three forms when tax season arrives.
However, there are significant distinctions among these forms that you should be aware of.
Payment Methods
One of the primary differentiators lies in the types of payments each form encompasses. The 1099-K primarily covers digital payments, including transactions facilitated through credit cards, debit cards, stored value cards, and payment platforms like PayPal or Stripe. On the other hand, Form 1099-NEC and 1099-MISC cover payments made via ACH transfers, cash, or traditional checks.
Form 1099-K is sent by the payment processor, not by businesses or individuals
Another notable distinction is the source responsible for issuing each form. Form 1099-K is typically provided by payment processors rather than by individual businesses or clients. On the contrary, when you work as a contractor, your clients are responsible for sending out your 1099-NECs and 1099-MISCs.
| Payment Type | Payment Method | Which Form | Who Files it |
|---|---|---|---|
| Payments made to Non Employees for services performed for trade or business . The non-employee includes Gigworkers,Independent Contractor,Freelanc |
|
1099-NEC | Payer (Employer, Individuals) |
|
1099-K | Payment Processor (Payment card companies, payment apps and online marketplaces) | |
| Rent, Prizes and Awards, Health care payments, Proceeds from fishing boat sales, Payments made to an attorney, Crop insurance proceeds, Section 409A deferrals,Nonqualified deferred compensation |
|
1099-MISC | Payer (Employer, Individuals) |
|
1099-K | Payment Processor (Payment card companies, payment apps and online marketplaces) |
Deadlines to file 1099-K, NEC & MISC
Unlike other forms in the 1099 Series, the deadlines for reporting on 1099-K, 1099-MISC, and 1099-NEC can vary. Here are the specific due dates for each.
| Form | Deadline |
|---|---|
| 1099-K |
|
| 1099-NEC |
|
| 1099-MISC |
|
5. What kinds of payments shouldn’t be reported using Form 1099-K?
In general, payments categorized as personal transactions, such as gifts and reimbursements to friends and family, are not subject to taxation and do not require reporting on Form 1099-K. However, there is a possibility that you might receive a Form 1099-K for such personal payments. In this case, it is advisable to maintain separate accounts for managing personal and business transactions.
For instance, if you are sharing expenses with a family member, roommate, or friend, it is recommended not to process these payments through your business accounts. This precaution is necessary as the payment settlement entity may struggle to differentiate between business-related and non-business-related payments.
6. What should you do if you receive 1099-K in error?
In certain scenarios, payees may receive a 1099-K for personal transactions conducted with family or friends or for duplicate payments.
In such instances, payees are required to contact the payer immediately and request a corrected 1099-K, the issuer name appears on the top right corner of the form
If you can’t get a corrected Form 1099-K, report as follows:
On Schedule 1 (Form 1040):
- Enter the error on Part I – Line 8z – Other income: "Form 1099-K received in error,"
- Adjust it on Part II – Line 24z – Other adjustments: "Form 1099-K received in error,"
7. How do you correct information on Form 1099-K if the gross amount report doesn’t belong to you?
There are situations when the gross payment amount (Box 1a) on Form 1099-K may not belong to you or is incorrect in the total gross payment amount being reported. This can occur due to common errors such as:
-
Reporting business income on Form 1120, 1120S, or 1065, while Form 1099-K is under your name and
Social Security Number. - Sharing your credit card terminal with another individual or business.
- Engaging in the purchase or sale of your business during the year.
- Changing your business entity structure within the year.
- Encountering a merchant category code (MCC) that doesn't accurately describe your business.
It's essential to review your business records to verify the accuracy of the gross receipts reported on Form 1099-K and to ensure the correctness of your tax-related details. If the information on your 1099-K doesn't align with your records, it's advisable to consider reaching out to the payment settlement entity (PSE) responsible for issuing the form.
8. What should you do if you receive Form 1099-K for personal items sold?
As per the IRS guidance, payees are required to report the information on their tax return under the
following circumstances.
| Scenario | Action |
|---|---|
| Personal items sold at a loss |
Personal items sold on loss are not taxable. You should report the loss of personal items either on Report on Schedule 1 (Form 1040) or Form 8949 Report on Schedule 1 (Form 1040)The payer should report and offset the gross payment amount of 1099-k on Schedule 1 (Form 1040). For example, If you bought a guitar at $1500 and sold it for $600 online. you have a loss of $900. This amount should be reported on Schedule 1 (Form 1040) in the following boxes.
Report on Form 8949You can also report the loss on Form 8949, which carries Schedule D |
| Personal items sold at gain |
Personal items sold for gain are taxable. For example, if you bought a concert ticket for $600 and sold it for $1000. If you have a gain of $400. This should be reported on
|
9. What should you do if you receive both 1099-K and 1099-MISC for the
same payment?
If you happen to receive both Form 1099-K and Form 1099-MISC or NEC for the same payment you received, simply report the income listed on either one of the Form 1099-K or 1099-MISC when filing your tax return. Make sure to maintain thorough records of your income and be ready to provide these records if a dispute arises.
10. How to avoid dual-reported income on Form 1099-K and 1099-MISC or NEC?
Given the recent reduction in the 1099-K threshold, the issue of dual reporting has become a significant worry for payees. For instance, if a client makes payments through PayPal, you might receive a 1099-K. However, if the same client also issues you a 1099-NEC, the duplicated monetary value could lead to an instance of income being reported twice on your tax filings, potentially resulting in an overpayment of taxes.
However, you can avoid this confusion by adhering to the following measures:
- Establish separate personal and business accounts.
- Ensure that personal expenses are covered using the personal account, while business expenses are paid from the business account.
- Accurately categorize payments from third-party applications within your accounting software.
- Consider revising your business payment policy to exclusively accept payments through online platforms (such as credit cards, debit cards, or payment apps) or solely through checks or cash.
- Clearly communicate with your clients who use Payment Settlement Entities (PSEs), advising them not to furnish you with a 1099-NEC or 1099-MISC form or vice versa.
11. Are credit card rewards and cashback considered Taxable income?
No, the credit card rewards and cashback payments are not considered taxable income and should not be reported on Form 1099-K.
12. How to file 1099-K, 1099-NEC, and 1099-MISC with TaxBandits
With TaxBandits, you can e-file Form 1099-K, 1099-NEC, and 1099-MISC in minutes and get instant notifications from the IRS. E-filing with TaxBandits offers several advantages, including postal mailing or e-delivery of recipient copies. We provide support for both Federal and State filings, allowing you to file multiple returns using bulk upload options.
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Our developer-friendly API enables streamlined W-9 automation & Automate 1099 filing at the year-end. It also simplifies the e-filing of Form W-2, 941, 940, 1095, and more.
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