Note: IRS delays the rollout of the $600 threshold for 1099-K reporting.
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The threshold for Form 1099-K remains at $20,000 with a 200 transaction limit for the year 2023. This delay designates 2023 as a transition period, maintaining the existing requirements for reporting.
Understand the difference between Form 1099-K, Form 1099-MISC, and Form 1099-NEC easily with this 2022 1099 reporting guide.
Reporting the payments made to various entities and individuals helps the IRS understand the incomes received by various parties. As a result, it also helps the IRS calculate the tax receivables, comparing the figure with the total tax owed by taxpayers.
When businesses report with various 1099 forms, it helps the IRS understand the payments made by one party and payments received as income by other parties through such payments.
Let’s assume that your entity has made a payment of $790 to a logo designer, then such a payment is seen as a payment from your entity’s perspective and income from the recipient’s perspective. While payments help reduce the tax burden for your entity, receipt of income increases the tax burden for the recipient.
Businesses are required to report and file with a variety of 1099 forms, including but not limited to Form 1099-NEC, 1099-MISC, and 1099-K. Each of these forms reports a variety of payments made to specific types of payees.
Let’s take a look at all such payments in the following discussion.
What Is Form 1099-K?
Form 1099-K is a 1099 federal return that specifically deals with third-party payments and payment card transactions made in a calendar year. IRS Form 1099-K reports the gross total of payments amounting to $600 or more made to merchants or retailers or participating payees in the settlement of reportable payment transactions.
What Is Form 1099-MISC
Form 1099-MISC is also a 1099 federal return that specifically deals with miscellaneous information in a tax year. Payments, such as rent, royalty, cash payments for fish, payments for healthcare expenses, crop insurance proceeds, and other miscellaneous payments totaling $600 or more are reported on this return.
What Is Form 1099-NEC
Form 1099-NEC, too, is a 1099 federal return that exclusively deals with non-employee compensations paid in a tax year. Payments made to independent contractors totaling $600 or more must be reported in this return. Independent contractors can be vendors, freelancers, self-employed individuals, and small business owners.
Differences Between Form 1099-K, 1099-NEC, and 1099-MISC
| Specifications | Form 1099-K | Form 1099-MISC | 1099-NEC |
| Form Description | Payment Card andThird PartyNetworkTransactions | Miscellaneous Information | Nonemployee Compensation |
| Purpose Of Form | Used for reporting third-party network payments and payment card transactions in a calendar year. | Used for reporting payments made to attorneys, rents, royalty, cash payments for fish, and other miscellaneous payments | Used for reporting nonemployee compensations and payments made to independent contractors in a tax year. |
| Minimum Reportable Amount | $600 | $10 for royalties, broker payments in lieu of dividends, or tax-exempt interest. $600 for other miscellaneous payments | $600 |
| Filing Requirements | File Form 1099-K for every participating payee to whom you’ve paid a gross total of $600 or more in settlement of reportable payment transactions. | File Form 1099-MISC for each merchant or payee to whom you’ve paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest. Also file Form 1099-MISC if you’ve paid at least $600 as rent, cash payments for fish, medical and healthcare payments, and more | File Form 1099-NEC for each independent contractor or payee to whom you’ve paid at least $600 or more as nonemployee compensations. |
| Payee | Payees in the 1099-K context include merchant entities, small businesses, self-employed professionals, online businesses, retail businesses, and others. | Payees in the 1099-MISC context include landlords, healthcare facilities that accept payments, fish sellers, brokers, and others. | Payees in the 1099-NEC context include freelancers, self-employed individuals, small or micro businesses, online businesses, entrepreneurs, gig workers, and others. |
| Payer | Merchant-acquiring entities, credit card companies, banks, financial institutions, merchant aggregators, and others. | The business or the person paying the payee becomes the payer. | The business or the person paying the payee becomes the payer. Example: Gig companies like Fiverr. |
| (Combined Federal/State Filing Program) CFSF Status | Yes | Yes | Yes |
| History | Previously required payers to only file Form 1099-K if the number of transactions was 200 or more and the gross total payments exceeds $20,000 | Previously included non-employee compensations as a part of the reporting regime. Nonemployee compensations were later separated after Form 1099-NEC was introduced. | Previously known as Box 7 of Form 1099-MISC. Now, Form 1099-NEC is an independent 1099 information return. |
| Exceptions To Filing | Don’t file Form 1099-K if the gross total of reportable payments made does not exceed the $600 limit. | Don’t file Form 1099-MISC if reportable payments do not meet the minimum reportable amount limits specified above. | Don’t file Form 1099-NEC if you did not pay a total of at least $600 as nonemployee compensations to your payee(s). |
| Late Filing Penalty | $50 to $280 per 1099 form Maximum penalty: $1,130,500 per year + interest | $50 to $280 per 1099 form Maximum penalty: $1,130,500 per year + interest | $50 to $280 per 1099 form Maximum penalty: $1,130,500 per year + interest |
| Reporting Payee TIN & Legal Name | Mandatory | Mandatory | Mandatory |
| Last Date For Filing | Recipient Copy: January 31IRS eFile: March 31IRS Paper File: February 28 | Recipient Copy: If no data is reported in Box 8 or 10, January 31. With data in Box 8 or 10, February 15. IRS eFile: March 31IRS Paper File: February 28 | January 31 (for both paper and electronic filing) |
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