Quick answer

Form 1099‑K is issued by payment processors and third‑party settlement organizations (e.g., PayPal, Stripe, credit card processors) to report card and third‑party network payments they settled for a payee. Form 1099‑NEC is issued by a business that paid an independent contractor or other non‑employee $600 or more in a calendar year to report nonemployee compensation. Regardless of which form you receive, all taxable income must be reported on your tax return.

(IRS references: Form 1099‑K and Form 1099‑NEC guidance — see the IRS pages for each form: https://www.irs.gov/forms-pubs/about-form-1099-k and https://www.irs.gov/forms-pubs/about-form-1099-nec.)

Who issues each form and why it matters

  • Who issues 1099‑K: the payment settlement entity (payment card networks, third‑party settlement organizations). These entities report gross payment card and third‑party network transactions they process on behalf of sellers.

  • Who issues 1099‑NEC: the payer (the business or person who directly paid an independent contractor for services) issues 1099‑NEC to the contractor and the IRS.

Why it matters: You may receive a 1099‑K and a 1099‑NEC for different income streams in the same year. A business should not issue a 1099‑NEC for payments it never directly made (e.g., payments routed through a third‑party platform are reportable by the platform as a 1099‑K, not necessarily by every buyer on the platform).

Thresholds and current rules (practical summary)

  • 1099‑NEC: The threshold for reporting nonemployee compensation is generally $600 in a calendar year (report to recipient and IRS when $600 or more). See the IRS Form 1099‑NEC page for details: https://www.irs.gov/forms-pubs/about-form-1099-nec.

  • 1099‑K: Historically, many payers and payees knew the $20,000 and 200‑transaction threshold used by third‑party settlement organizations (TPSOs). Legislative changes lowered the statutory threshold to $600 for aggregate payments, but implementation and IRS guidance led to transitions and phased timelines for platforms and taxpayers. Because IRS guidance and software/platform reporting practices evolved during and after the statutory change, confirm the current reporting threshold and implementation year on the IRS Form 1099‑K page before preparing returns: https://www.irs.gov/forms-pubs/about-form-1099-k.

Note: The practical takeaway for most small businesses and gig workers is to track gross receipts carefully — treat all platform, card, and contractor receipts as potentially taxable and reconcile your records to any 1099s you receive.

Common scenarios and examples

  • Example A — Seller using a payment platform: You sell hand‑crafted goods on an online marketplace and the platform processes the buyer’s payment (credit card or third‑party network). The platform may issue a 1099‑K to you if its reporting threshold is met; you do not issue a 1099‑NEC to yourself. You report gross receipts on Schedule C (or appropriate return) and subtract allowable business expenses.

  • Example B — Business hiring a contractor: Your landscaping business hires a contractor and pays $1,500 directly during the year. You should obtain a W‑9 from the contractor and file Form 1099‑NEC to report the nonemployee compensation (and furnish a copy to the contractor).

  • Example C — Platform that pays contractors: If you sell through a marketplace that pays contractors directly (e.g., gig platform that hires drivers or freelancers and handles payouts), the platform typically issues the 1099‑K (or 1099‑NEC in limited situations) to the worker; you must still confirm how the platform reports and report your own expenses.

How to avoid double‑reporting or missing income

  • Reconcile 1099s to your books. If you receive a 1099‑K showing gross payment amounts from a payment processor and also receive 1099‑NEC or have the same payments in your business bank account, reconcile to avoid counting the same income twice.

  • Understand gross vs. net reporting. 1099‑K reports gross payment amounts before fees and refunds. You claim fees and refunds as business expenses on your tax return; do not reduce your gross receipts on the return because the 1099‑K already reports the processor’s gross amounts to the IRS.

  • Personal transfers and reimbursements. Payments that are purely personal gifts or reimbursements (with adequate documentation) are typically not taxable business income and usually not reportable on 1099‑K/NEC. Keep clear records and consult a tax professional if unsure.

Step‑by‑step: What payers should do

  1. Classify the payee correctly. Determine whether the payee is an employee (W‑2) or an independent contractor (1099‑NEC) — misclassification can trigger payroll tax and penalty exposure. See our guide on worker classification for more on this and documentation: “Employer Reporting Basics: W‑2 vs 1099‑MISC vs 1099‑NEC” (internal resource).

  2. Obtain Form W‑9 before paying contractors. Collect the contractor’s Taxpayer Identification Number (TIN) and legal name to avoid backup withholding and to prepare accurate 1099‑NECs.

  3. Track payments across channels. If you pay contractors via a third‑party platform, confirm whether the platform or you are responsible for reporting. Ask the platform for its reporting policy in writing.

  4. File on time. For 1099‑NEC, recipient and IRS filing deadlines are strict (usually January 31 to the recipient and the IRS for both paper and e‑file filings for the NEC). For 1099‑K, platforms follow IRS rules for issuer filing; confirm dates and e‑file requirements.

  5. Correct mistakes quickly. If you discover an error after filing, file a corrected information return promptly. See our internal guidance on correcting W‑2 and 1099 errors: “How to Correct W‑2 or 1099 Errors with an Amended Return.”

For payees (independent contractors, sellers, gig workers)

  • Report all taxable income. Even if you don’t receive a 1099‑NEC or 1099‑K, you must report all income. Keep bank statements, platform statements, and invoices to support your return.

  • Track platform fees and refunds. Because a 1099‑K reports gross proceeds, save records of payment processor fees, chargebacks, and refunds so you can deduct them as business expenses.

  • If you believe a 1099 is wrong, contact the issuer immediately and ask for a corrected form; if unresolved, attach an explanation to your tax return and consult a tax professional. See our article “Reporting 1099 Income: Common Errors and Fixes” for troubleshooting steps.

Penalties and risk areas

  • Failure to file correct information returns or to furnish payee statements can result in IRS penalties. Penalties scale by how late the forms are filed and whether the failure was due to intentional disregard.

  • Misclassifying an employee as an independent contractor can trigger payroll tax liabilities, penalties, and interest.

  • Information return mismatches (amounts reported to the IRS that don’t match your return) often trigger IRS notices and require reconciliation.

State reporting and platform nuances

Some states have additional reporting requirements or use information returns for state tax enforcement. Payment platforms may have different thresholds for issuing 1099‑Ks to comply with their internal policies or state rules. Always review platform statements and your state’s revenue department guidance.

Correcting errors and best practices

  • If a 1099 is incorrect, request a corrected form from the issuer and don’t delay amending your tax return if you already filed incorrectly.

  • Maintain a consistent bookkeeping system (accounting software that imports payment processor statements can reduce reconciliation errors).

  • Use Form W‑9 for contractors and make sure TINs match IRS records to avoid backup withholding surprises.

  • When in doubt, document your position. For disputed items (e.g., whether a payout is a reimbursement vs. income), keep contemporaneous documentation.

Helpful internal and authoritative resources

Internal FinHelp resources:

Professional insight (from my practice)

In my work advising small businesses and freelancers, the biggest compliance wins come from two places: keeping clear, category‑level bookkeeping (sales, fees, refunds) and getting a W‑9 on file before paying anyone. Many of the IRS mismatch notices I help clients resolve are preventable with monthly reconciliations against platform reports.

Final checklist before filing

  • Did you collect W‑9s for contractors?
  • Did you reconcile all payment processor reports to your bookkeeping?
  • Did you confirm which party (you or a platform) is responsible for issuing an information return?
  • Do you have documentation for refunds, reimbursements, and fee deductions?

If the answer to any of these is no, pause and resolve the gap before filing.

Disclaimer

This article is educational and not individualized tax advice. Rules and implementation details for 1099‑K reporting changed in recent years; confirm the current thresholds and filing obligations for the tax year you’re preparing by checking IRS guidance or by consulting a CPA or tax professional.