What is Form 1099-NEC? Who receives Form 1099-NEC?
Starting in tax year 2020, 1099-NEC (non-employee compensation) will be issued to self-employed individuals, like independent contractors, freelancers, or side-giggers who have been paid $600 or more. Wages might not trigger a 1099-NEC if they are under $600, but you are still responsible for reporting all income whether a 1099-NEC was received or not. As a self-employed person, you are required to report your self-employment income if your net earnings from self-employment are $400 or more.
In this situation, the process of filing your taxes is a little different than a taxpayer who only receives regular employment income reported on a W-2. When you receive a 1099-NEC reporting your income, you can claim deductions against that income on a Schedule C, lowering your taxable income from self-employment.
Luckily, you don’t have to know about form Schedule C: TurboTax Self-Employed will ask you simple questions about you and your business, and fill it out for you based on your answers so that it is effortless!
What is Form 1099-K? Who receives a 1099-K?
Form 1099-K, also called Payment Card and Third Party Network Transactions, is used by credit card companies and third-party processors like PayPal and Amazon to report the payment transactions they process for retailers or other third parties. You’ll receive a 1099-K if you accepted credit cards, debit cards or prepaid cards and had over $20,000 in sales and more than 200 individual transactions through a third party processor. It reports the gross amount of the transactions, which means if you’re a Uber or Lyft driver, your fees, commissions, safe rider fees or phone rental payments are not deducted. You can deduct those as part of your business expenses along with the mileage you drove.
Your ride-share operator, or other on-demand economy partner, should provide you a tax summary you can use to translate the 1099-K information into some of the income and expenses to report when you file your self-employment taxes.
Under the American Rescue Plan, changes were made to Form 1099-K reporting requirements for third-party payment networks like Venmo and Cash App that process credit/debit card payments or electronic payment transfers. The change begins with transactions starting January 2022, so it doesn’t impact 2021 taxes. Beginning with tax year 2022 if someone receives payment for goods and services through a third- party payment network, their income will be reported on Form 1099-K if $600 or more was processed as opposed to the current Form 1099-K reporting requirement of 200 transactions and $20,000. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.
