Forms 1099-NEC and 1099-K

Two similar-sounding forms come up constantly in small business tax work, and they point in opposite directions. Form 1099-NEC is one you file when your business pays an independent contractor. Form 1099-K is one you may receive when you are paid through a card processor, payment app or online marketplace. Thresholds for both changed under the One Big Beautiful Bill Act (Public Law 119-21), so this guide covers 2025 filings and 2026 payments.

Form 1099-NEC: when your business pays contractors

You generally must file Form 1099-NEC if, in the course of your trade or business, you paid someone who is not your employee for services (including parts and materials) and the total reached the threshold for the year.

Other points:

• Corporations. Payments to corporations are generally not reportable, but attorneys' fees and legal services payments are exceptions.
• Personal payments are not reportable. Only payments made in the course of a business are.
• Credit card payments. If you pay a contractor by credit card, debit card or a payment app, the payment is reported by the processor on Form 1099-K, not by you on Form 1099-NEC.
• Backup withholding. If a contractor does not give you a taxpayer identification number, you must withhold at a flat 24 percent and report it, and you must file a Form 1099-NEC regardless of the amount. Collect a Form W-9 before you pay.
• E-filing. If you file 10 or more information returns of all types combined in a year, you must file them electronically.
• Direct sales. Sales of $5,000 or more of consumer products for resale are reportable on a separate basis.

The higher threshold also applies to other payments reported on Form 1099-MISC (such as rent) for payments made after 2025, though other items such as royalties have their own thresholds. Check the current form instructions.

Reporting makes sense only if the worker is truly a contractor. See employee vs. independent contractor and our contractors and Form 1099-NEC guide.

Penalties for getting it wrong

For information returns due in 2026, the IRS lists penalties per return of $60 if filed within 30 days after the due date, $130 if filed after that but by August 1, and $340 if filed after August 1 or not at all, rising to $680 per return for intentional disregard. Annual maximums apply, and they are lower for small businesses. A de minimis rule can excuse small dollar errors. See information return penalties.

Form 1099-K: when you are paid by card or app

Form 1099-K reports payments you received for goods or services through two channels:

• Payment cards (credit, debit and gift cards): reported by the card processor with no minimum.
• Third party networks, such as payment apps and online marketplaces: reported only if gross payments to you exceed $20,000 and the number of transactions exceeds 200 in the calendar year. Both conditions must be met.

Public Law 119-21 retroactively restored these $20,000 and 200-transaction levels, replacing the $600 threshold from the American Rescue Plan Act. Platforms may still send a form for lower amounts. Backup withholding on third party network payments follows the same test.

The form shows the gross amount, which is not adjusted for fees, refunds, shipping or other items. It may include sales tax or personal payments, so it may not equal your taxable income.

What to do with each form

If you receive a 1099-K:

1. Compare it to your records, separating business sales, personal payments (such as splitting a bill) and sales tax.
2. Report your actual business income on Schedule C. If the form includes an error or is not yours, ask the payer for a corrected form, and keep records of the steps you took.
3. Personal items sold at a gain are generally taxable. A loss on a personal item is not deductible.
4. Keep business and personal transactions in separate accounts or app profiles going forward.

If you must file a 1099-NEC:

1. Collect a Form W-9 from each contractor before the first payment.
2. Track payments by contractor during the year.
3. File and furnish by the deadline, and keep copies.

How we can help

We can review who needs a Form 1099 in your business, prepare and e-file Forms 1099-NEC, reconcile Forms 1099-K to your books, and help set up a W-9 process for the year ahead. Learn more about our bookkeeping and payroll services, or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.