What's the Difference Between a 1099-Misc and a 1099-K?

We get quite a few questions regarding 1099-misc and 1099-K form this time of year. While we are NOT tax professionals, we were able to get this great advice from Eric Nisall of AccountLancer.com. If you are a freelance who need accounting advice or services, we highly recommend dropping him a line!

There are a couple of ways to simplify the discussion and the rules for regular people without accounting or tax backgrounds. Keep in mind, this is just a simplified list for the purpose of making certain points easily understandable and digestible. You should always consult your own accountant to see how it applies to your specific situation.

1. As a non-payment-processing entity, you never issue a 1099-K to anyone. (That's the job of Paypal, etc.)

2. If you are paying an incorporated entity (S-Corp, C-Corp, LLC taxed as a corporation), you do not issue a 1099-MISC to them.  There are some exceptions like attorneys, but that is generally the only one that most people need to concern themselves with.

3. You only report cash/check payments to the people who require reporting. This is because the payment-processing companies (like PayPal) already handle the debit/credit card transactions to those vendors which accept such payments

4. If you pay vendors through a service (Freelancer, Odesk, Fiverr, etc.), you never send anything regardless of form of payment as you are paying the service and the service is the actual entity required to file the 1099s.

5. If you are the one receiving the money, you report everything as you normally would, regardless of whether or not you receive any kind of tax form. It's YOUR responsibility to report your income, no one else's.

So, most independent contractors will receive a 1099-misc from any company paying you more than $600 in payments last year -- UNLESS they paid you through PayPal.  Then, if you received PayPal's threshold amount for receiving a 1099-K, you'll get one from them. (More info on that threshold here.)

What if you get a 1099-misc for income already reported on a 1099-K?  Talk to the person issuing the 1099-misc and show them this link, specifically the part about 1099-K's.  They can void the 1099-misc and save you headache with the IRS.

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