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Form 1099-NEC vs. Form 1099-K: What’s the Difference?

Gig Workers Self-Employed Taxes Self-Employment Tax Forms Self-Employment Tax Planning
A self-employed woman thoughtfully examines her 1099-NEC and 1099-K tax forms

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Updated for tax year 2023.

At the beginning of every tax season, you receive informational tax forms in the mail from your places of employment, financial institutions, and organizations you did business with throughout the year that the Internal Revenue Service (IRS) wants to hear about.

Two of those forms may look very similar if you’re an entrepreneur, a freelancer, or otherwise self-employed: Form 1099-NEC and Form 1099-K.

While these tax forms appear similar, they serve different purposes. To correctly report your income this coming tax season, it’s important to understand what each of those forms tells you. Let’s take a look at the differences.

Form 1099-NEC and Form 1099-K both report income.

Form 1099-NEC and Form 1099-K report the business income you received during the tax year. You and the IRS receive both forms, but there are some key differences.

The purposes of the forms are different.

Businesses send Form 1099-NEC, Nonemployee Compensation, if you earn at least $600 in freelance work or contract labor during the year. Depending on how many clients you had during the tax year, you may receive more than one 1099-NEC. Your 1099-NEC form tells you how much these clients paid you during the year.

If you accept bank card transactions or use third-party platforms for payment (PayPal, Square, etc.), these institutions may also send you Form 1099-K, Payment Card and Third Party Network Transactions. The form shows your total bank card revenue for the year. The third party must send you a 1099-K form if you had at least 200 transactions totaling at least $20,000 in payments during the 2023 year. You may receive more than one 1099-K if your gross receipts exceed the reporting threshold in multiple platforms.

In other words, Form 1099-NEC reports income from a particular business, regardless of the form of payment. Form 1099-K reports bank card and payment app income from all your customers and clients.

Corporation requirements aren’t the same.

Businesses are generally not required to send you Form 1099-NEC if your business is incorporated and treated as an S corporation or a C corporation. However, financial institutions must send Form 1099-K to all businesses with bank card revenue, regardless of whether they are incorporated. Non-profit organizations also receive Form 1099-K.

Income can be reported twice.

Sometimes income can show up twice — on Form 1099-NEC and Form 1099-K. For example, let’s say you clean carpets for a large business and earned $35,000 last year. You also accept credit cards for payment via an app like Square. The companies you cleaned for sent you Form 1099-NEC showing the payments they made. But because you received some payments via credit card, Square also sent you Form 1099-K reporting those payments.

This is why keeping good records is essential — to avoid paying income and self-employment tax on the same money twice. Always check your 1099 forms against your own records to ensure you report your income correctly.

You may notice discrepancies with Form 1099-K.

Form 1099-K shows the gross amount of income paid by your customers. Generally, you receive a smaller amount after bank card processing fees are taken out, but don’t worry — you don’t pay tax on the gross amount. Be sure to report your fees and other expenses on your income tax return to calculate your tax based on your net income. The good news? Filing with TaxAct® can help make those calculations easy, so you don’t have to wonder if you’re overpaying in taxes.

This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.

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