Form 1099 K Vs 1099 NEC: Which Form to Use for 2021? Did you hire independent contractors every year? How do you pay them? Direct cash or through credit/debit cards? As per the IRS guidelines, there are two different tax forms to report the compensation made to a non-employee.
Confusing? Don’t worry! We will let you know Which Form to Use for the 2021 tax year. We have provided information about the 1099 NEC Tax Form as well as Form 1099 K. know the difference and finally use the right 1099 information return.
Who Should Use 1099 NEC?
As per the IRS norms, any business that makes payments of $600 or more to non-employees must use revived Form 1099 NEC. Or else, file 1099 NEC, if the payments made, meet any one of the below conditions:
- Compensation is paid to an individual who is not your business’s full-time employee.
- Payments made are on the course of your business/trade.
- Non-employee compensation made is to an individual, or estate, partnership, or corporation.
- The total compensation made to an individual exceeds $600 in a calendar year.
- At least $10 made for royalties on working interest.
- Withheld any federal income taxes under backup withholding rules regardless of the amount.
When Do I File 1099 K Form?
Generally, IRS Form 1099 K is popularly used by third-party settlement organizations. Given below are the circumstances that require the 1099 K Tax Form:
- Payments made to an individual are through third-party networks like Amazon or PayPal or through payment cards like credit/debit.
- The compensation made through payment cards exceeds $600 in a tax period.
- If the compensation paid through third-party networks exceeds $20,000 in a calendar year.
- Third-party network transactions exceed 200 individually in a tax year.
When your business meets anyone among the above conditions, then you need to file a “1099 K Tax Return”.
Do I Use 1099 K or 1099 NEC?
As we know, most business owners get confused about “which 1099 Tax Form to file for a contractor”. Generally, if you made compensation of $600 or more via direct check or cash, you can use 1099 NEC. Or else, if you pay the contractor using third-party networks, then you need to file 1099 K. If in case, if you paid the same contractor using cash & credit cards, then you need to file both the tax forms. This is because the IRS requires every taxpayer to report the payments made apart from regular salary. This helps to identify the underreported income. Thus, taxpayers & payees are responsible to report the 1099 income on the respective tax return to the IRS. Otherwise, you may face the risk of getting penalized.
What happens if I file 1099 K instead of Form 1099 NEC?
According to the IRS guidelines, if you file an incorrect 1099 information return, you may be subject to penalties. The IRS penalties are heavy and hefty. These are charges per 1099 information return. Thus, to avoid unwanted penalties & interests “file correct 1099 information return”. On the other hand, if get confused follow the IRS Form 1099 Instructions. By filing 1099 Tax returns as per the IRS instructions, you can experience successful form 1099 filing.
Is the deadline differ for 1099 NEC & Form 1099 K?
Yes, the deadline to furnish the tax returns for both the IRS and to the recipient is different for the 1099 NEC Tax return and the 1099 K Form. As per the IRS guidelines, the payer who made non-employee compensation must:
- Furnish recipient copy B by “January 31st” every year.
- Copy A to the IRS by “January 31st” annually.
The taxpayer who paid a contractor using payment cards must:
- Furnish recipient copy B by “January 31st” every tax period.
- Copy A to the IRS by “February 28th” for paper filing & “March 31st” for e-filing.
Thus, know the deadline before submitting the tax returns. Otherwise, there is a chance to miss the deadline. Henceforth, you may face unwanted penalties & fines.
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