Let’s talk about the two forms you’ll likely see – the 1099-NEC and 1099-K.
What is a Form 1099-NEC?
Form 1099-NEC is used to report non-employee compensation of $600 or more for the year. You’ll send a copy to the IRS and to the non-employee. The key to understanding who receives this form – any person who provided services to your business and who is not a payroll employee for your business.
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freelancers
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independent contractors
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small businesses
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professionals who provide services to and for your business
Are there exceptions?
If the non-employee is a limited liability company (LLC) that has made an S corporation election for tax purposes, you are not required to send a 1099-NEC.
What is a Form 1099-K?
Form 1099-K is used to report payments of $600 or more made with a credit card or payment card and certain other types of payments, including third-party network transactions. These payments must be reported on Form 1099-K by the payment settlement entity (PSE) and are not subject to reporting on Form 1099-NEC.
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Square
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Stripe
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PayPal
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Venmo, etc.
Additionally, if you are using a CRM such as Dubsado or Honeybook, you have a payment settlement entity running in the background that processes payments.
Why didn’t I receive a 1099-K last year from my payment settlement entity?
The previous threshold for issuing a 1099-K was $20,000 and 200 transactions. Effective January 1, 2022, the $600 threshold was put into practice and applies regardless of the number of transactions.
Additional Resources
Full guidance on the rules for 1099s is available directly on the IRS website at
https://www.irs.gov/instructions/i1099k and https://www.irs.gov/instructions/i1099msc
We hope this short summary gives you a better understanding of the requirements for 1099 reporting this year!
All the best,
The Creative’s CFO Team