The introduction of the 1099-NEC in 2020 has many businesses still stumped about which to file: 1099-MISC, 1099-NEC, or 1099-K. Let’s break them down here quickly.
Because there are more than 40 different information returns that businesses and individuals are filing any given year, it’s easy to get lost in them. Each one has been described in detail by the IRS, but that doesn’t mean there won’t be specific cases where you are unsure if someone who did work for you is considered an independent contractor or not, or whether your last Venmo payment to a contractor puts you over the threshold that then requires an information return be filed. Rest assured, eFile360 is here to help.
The Form 1099-MISC is the one you’ll use to report miscellaneous payments you’ve made throughout the year.
These miscellaneous payments include, according to the IRS, any of the following that totaled at least $600:
- Prizes and award
- Other income payments that don’t include non-employee payments (those are filed on the 1099-NEC, see below)
- Medical and healthcare payments
- Proceeds from crop insurance
- Cash payments for fish and other aquatic life purchased from anyone in the trade or business of catching fish
- Cash paid from notional principal contract to an individual, partnership, or estate
- Payments to an attorney
- Fishing boat proceeds
The term “miscellaneous” accurately describes the different payment types and descriptions captured here, and previously was used to report the non-employee payments made to independent contractors, but that is now reported on the newly reinstated 1099-NEC.
Because the 1099-MISC is responsible for reporting so many different things, it’s important to know when and if your payments fall in these categories, as there are penalties for incorrect filings.
2022 has been a hot year for 1099-K changes. Many tax, business, and payment industry gurus are weighing in on the latest changes and how they will affect you next year, come tax time. We’ve talked about these changes and their potential impact on the future of payments in this recent eFile360 blog article.
Form 1099-K is also known as the Payment Card and Third-Party Network Transactions information return. It is used by all credit card companies and third-party payment processors to report their payment transactions that have been processed for retailers or other third parties.
Because of the American Rescue Plan act, the thresholds for the 1099-K have been reduced. Where previously, you need only send a 1099-K if you handled more than 200 transactions that totaled a gross amount of more than $20,000, ARPA now requires Form 1099-K to be collected from any entity that had a gross amount of more than a mere $600. There is no minimum transaction limit, either.
Because this is a drastic change from previous years, many industries are anxious to see how this will affect third parties and other vendors, especially small and medium-sized businesses that have done most of their post-pandemic business through online shopping and transaction channels, websites, and apps.
There are hundreds of third-party payment vendors, but many of the most common include Amazon, Etsy, PayPal, Venmo, Cash App, Apple Pay, and other similar companies.
Form 1099-NEC is a recently renewed information return form that was discontinued from use in the 1980s. Today, it is used to report non-employee compensation – non-employees include independent contractors and freelancers that you may have hired to do some work for your business on a piecemeal, recurring, or consistent and involved basis.
You’ll need to use a 1099-NEC if you
- Paid an independent contractor $600 or more for their services, not including physical products.
- Paid an independent contractor the above amount for business purposes
- Paid an independent contractor that wasn’t considered a C-Corporation or S-Corporation
A 1099-NEC does not need to be filed for any of your regular employees – those wages and payments are filed on the W-2.
Because there has been such a big boom in the number of people participating in the gig economy, we’d recommend that you always request a W-9 from any independent contractors you are thinking you might work with soon.
Because of the increase in online and freelance services being offered post-pandemic, you want that W-9 early so you can weed out any potential vendors who may not be legitimate, taxable businesses.
There are endless examples of independent contractors and freelance work that you may have completed during the last tax year. This includes any office construction work you ordered, freelance marketing content you commissioned, the artwork you bought from an Etsy shop for your own business, landscaping, and much more.
eFile360 Is Helmed by Information Returns Experts, Ready to Assist You
eFile360 helps business owners, accounting personnel, CPAs, and HR professionals all over the United States with the e-filing, printing, and mailing of information return forms.
And since the tax code and its related rules and regulations are always changing, you don’t have time to monitor every piece of tax news the IRS shares. Our experts at eFile360 stay informed about the latest form changes (like the 1099-NEC, 1099-K, and 1099-MISC), deadlines, and regulations updates so you don’t have to.
Tax time is stressful, so why not sort out how eFile360 can help you in the next tax season before it’s upon us?
For help organizing and filing your 1099 information returns, sign up for a free eFile360 account today.