The 1099-K is an incredibly young form relative to the 1099 family (of which there are 15 different types of 1099 forms). This article seeks to cut through the confusion. Let's walk through the reasons an organization would file a 1099-MISC versus a 1099-K.
The 1099-MISC is used to report many different types of payments in the course of trade or business. For most platforms and marketplaces, Form 1099-MISC is generally used to report business payments over $600 independent contractors. For example, let’s say a business hired a team of freelance writers to create content for the company website. Each freelancer was paid over $600 throughout the year. Each freelancer will then receive a 1099-MISC reporting the total payments made to them for their work. The key is that the services were provided directly to the business.
A payment settlement entity (PSE) is required to file a form 1099-K. What exactly is a PSE? A PSE comes in two forms:
This guide focuses on Third-Party Settlement Organizations as they are most relevant for the majority of company 1099-K form filers.
In general, a company must meet certain requirements to be considered a TPSO. Those requirements include:
The threshold for when a TPSO must send a 1099-K is higher than for a 1099-MISC. A TPSO is only required to file a Form 1099-K when reporting payments to a participating payee or provider of goods and services vendor or contractor that exceed both 200 transactions and $20,000 during the course of the year.
Yes, they do. Unlike the 1099-MISC, the form 1099-K is sent to both individuals and corporations to report transactions. For example, an LLC that elects to be treated as a C-Corporation would not be sent a 1099-MISC but would be sent a 1099-K depending on the payor’s particular obligation.
Yes, also unlike the 1099-MISC, TPSOs must issue 1099-Ks to tax-exempt entities like non-profits.
One point of confusion for a lot of 1099-K filers and recipients alike is the reporting of gross payments. On the 1099-K, you’re required to report the gross payments which often includes how much was sent to a payee before any processing or platform fees.
Incorporated businesses like S-corporations and C-corporations don’t receive 1099-MISC. But, they do receive 1099-K’s as well as tax-exempt entities like nonprofits.
One important caveat to emphasize: credit card payments or payments to a contractor made using a third party settlement network (TPSO), fall under the rules of a 1099-K. So, returning to the above example, let’s say a company paid freelance writers with a company credit card. The company does not need to issue them 1099-MISCs even if they were paid over $600. It’s the merchant acquiring bank’s job to send them a 1099-K if payments exceed both $20,000 and over 200 payments.
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