Being self-employed comes with plenty of perks, but it can also make tax time a bit of a nightmare. Depending on how you’re paid, you might get 1099-MISC, 1099-NEC or 1099-K forms in Union City, NJ. What’s the difference between these forms? Read on to learn more about which tax forms are used for which types of compensation.
Do you get 1099-MISC, 1099-NEC or 1099-K forms?
Tax forms have changed a little for tax year 2020. If you’re a freelancer or consultant who has earned over $600, you can expect to see your earnings on a 1099-NEC (non-employee compensation) form, whereas prior to 2020, it would have been reported on a 1099-MISC.
If you’re paid through a third-party provider (like PayPal), you might receive a 1099-K. Finally, the 1099-MISC is now reserved for other types of miscellaneous income.
Qualifying as a self-employed worker
If you’re self-employed, you’re generating income for personal use—rather than being an employee at a company, you set your own hours, rates and work parameters. That is, according to the IRS, “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” Examples of self-employed workers or independent contractors include Uber and Lyft drivers, doctors, lawyers, bookkeepers and accountants in private practices, online freelancers (IT and web design, for example) and more.
When would I receive a 1099-K?
If you use credit card or other third-party payment programs, like PayPal, to accept over $20,000 in payments and 200 transactions, you will get a 1099-K. The 1099-K only reports the gross amount of income, and does not take into account fees, commissions, phone rentals or other deductions. It’s your responsibility to deduct those and your mileage as part of your business expenses. If you’re a rideshare driver, your company should provide you with a summary of those expenses.
When would I receive a 1099-MISC?
Again, 1099-MISC used to be the basic self-employment form—now, it’s used for other miscellaneous income. For example, if you made more than $10 in royalties or broker payments in lieu of dividends or tax-exempt interest, or over $600 in rents, prizes, fishing or fishing boat proceeds, or more than $5,000 in direct retail sales to consumers not at a retail establishment, you’ll receive a 1099-MISC. These are just a few of the examples—there may be other situations in which you’d receive the form.
Remember, for all other self-employment income, you’ll probably get a 1099-NEC. If you have questions about the forms you’ve gotten, or aren’t sure what they mean, your accountant can help. It’s always a smart idea to work with a skilled accountant and tax preparer when you make a large portion of your income from self-employment.
When you need help determining which tax form to use in Union City, NJ, reach out to Kedean’s Generation. We’re happy to help make your tax season as simple as possible.
Categorised in: Tax Consultant