Self-employment comes with many perks – being your own boss, making your own hours, and even taking advantage of deserved business expense deductions. Did you drive during the course of the work you performed? You can take a mileage deduction. Did you buy a computer or office supplies to use for consulting? Then you may be able to deduct your office supplies or office equipment.
But what forms should you expect when filing your taxes? If you were self-employed or worked on a contract basis with no taxes withheld, your income may be reported to you on different tax forms: a 1099-NEC (Formerly reported on Form 1099-MISC) or Form 1099-K if you were paid by a third-party payment service like PayPal or Venmo.
If you’re self-employed and accept credit, debit, or prepaid cards, you may receive Form 1099-K for transactions processed by a third party. This includes creators, influencers, rideshare drivers, or side-giggers. If you’re an online seller selling on platforms like Ebay, AirBnB, Etsy, and VRBO, you may also receive Form 1099-K.
The 1099-K is not a new form, but reporting thresholds have changed and been delayed. For tax years prior to 2023, the threshold for third-party network transaction payments was more than $20,000 and more than 200 transactions.
The American Rescue Plan of 2021 changed third party payment processors reporting requirements to payments processed exceeding $600, which is down considerably from the original more than 200 transactions per year and exceeding an aggregate amount of $20,000 reporting requirement.
On December 23, 2022 the IRS announced a delay in the lower reporting thresholds for third-party settlement organizations for tax year 2022 (taxes filed in 2023) and again on November 21, 2023 for tax year 2023, so people who have payments processed through third party platforms like Venmo and PayPal may still only receive a 1099-K form reporting their processed payments if they exceed $20,000 and more than 200 transactions.
Note, if you are not in business for yourself selling goods and services, but receive payments from friends and family through a third-party payment provider, be sure to have them note that the payment is for personal purposes to help the third-party provider not classify your payment as income that should be reported on Form 1099-K.
Starting with tax year 2020, freelancers, consultants, and those working in the on-demand economy, like Uber and Lyft, who make $600 or more, began receiving Form 1099-NEC. Prior to tax year 2020, self-employed individuals received a 1099-MISC instead of a Form 1099-NEC. Those working in the on-demand economy or who are paid by a third-party provider like PayPal may also receive a 1099-K, while the 1099-MISC is reserved for any other miscellaneous income.
Tax Forms for Self-Employed Individuals
Don’t worry about knowing all of these different tax forms. TurboTax Premium will ask you if you received the individual forms and will accurately fill out the correct tax forms based on your entries. You can also jump-start your taxes by snapping a photo of your Form 1099-NEC and your Form 1099-K, and the information will accurately transfer to your tax return.
TurboTax Premium easily walks you through filing your taxes, and we are here to break down which tax form your income will be reported on and which 1099 form you may receive.
Who Qualifies as Self-Employed/Contractor?
To make it plain and simple, being an independent contractor is one way to be self-employed. Being a self-employed individual implies that you generate personal income and you do not work as an employee for anyone else.
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.”
An independent contractor can be anyone who makes income by providing services to the general public and does not work under a traditional employer-employee partnership. Some examples include:
- Doctors working in a private practice
- Uber, Lyft, and other rideshare drivers in most states
- Lawyers
- Bookkeepers, accountants
- IT, web designers, programmers
- Online freelancers
What is Form 1099-NEC? Who receives Form 1099-NEC?
Form 1099-NEC (non-employee compensation) will be issued to self-employed individuals, like independent contractors, freelancers, or side-giggers who have been paid $600 or more. Wages might not trigger a 1099-NEC if they are under $600, but you are still responsible for reporting all income whether a 1099-NEC was received or not. As a self-employed person, you are required to report your self-employment income if your net earnings from self-employment are $400 or more.
In this situation, the process of filing your taxes is a little different than a taxpayer who only receives regular employment income reported on a W-2. When you receive a 1099-NEC reporting your income, you can claim deductions against that income on a Schedule C, lowering your taxable income from self-employment.
Luckily, you don’t have to know about form Schedule C: TurboTax Premium will ask you simple questions about you and your business, and fill it out for you based on your answers so that it is effortless!
What is Form 1099-K? Who receives a 1099-K?
Form 1099-K, also called Payment Card and Third Party Network Transactions, is used by credit card companies and third-party processors like PayPal and Amazon to report the payment transactions they process for retailers or other third parties. You’ll receive a 1099-K if you accepted credit cards, debit cards, or prepaid cards and had over $20,000 in sales and more than 200 individual transactions through a third party processor. It reports the gross amount of the transactions, which means if you’re a Uber or Lyft driver, your fees, commissions, safe rider fees or phone rental payments are not deducted. You can deduct those as part of your business expenses along with the mileage you drove.
Your ride-share operator, or other on-demand economy partner, should provide you with a tax summary you can use to translate the 1099-K information into some of the income and expenses to report when you file your self-employment taxes.
Under the American Rescue Plan, changes were made to Form 1099-K reporting requirements for third-party payment networks like Venmo and PayPal that process credit/debit card payments or electronic payment transfers. The change was to take effect with transactions starting tax year 2022 and lowered the reporting threshold by third party payment processors to over $600. On December 23, 2022 the IRS announced an initial delay and on November 21, 2023 the IRS announced another delay in reporting thresholds for third-party settlement organizations (TPSOs). As a result of this delay, TPSOs will not be required to report tax year 2023 transactions on a Form 1099-K at the lower amount of over $600. This means that for tax year 2023 (the taxes you file in 2024) the existing 1099-K reporting threshold of the aggregate of more than $20,000 in payments and over 200 transactions will remain in effect. The IRS is currently planning for a threshold of $5,000 for tax year 2024 (the taxes you file in 2025) as part of the phase in to implement the lower over $600 threshold enacted under the American Rescue Plan. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.
What is Form 1099-MISC? Who receives a 1099-MISC?
The Form 1099-MISC was replaced by Form 1099-NEC for self-employed. So while you may have been accustomed to receiving a 1099-MISC for your freelance, side gig, or self employment income in previous years, the 1099-NEC will be replacing many of its uses. However, you still may receive a 1099-MISC for any other miscellaneous income you earned. Here are the other types of income that will be reported on Form 1099-MISC:
- $10 or more in royalties or broker payments in lieu of dividends or tax-exempt interest.
- $600 or more in:
- Rents.
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney.
- Any fishing boat proceeds.
- $5,000 or more of direct sales of consumer products for resale anywhere other than a permanent retail establishment.
TurboTax Premium Has You Covered
Again, the great thing is, you don’t need to worry about knowing these tax rules or how to fill out forms. TurboTax Premium will ask you simple questions about you and your business or side-gig and will search industry-specific deductions you are eligible for based on your answers, saving you your hard-earned dollars so you can keep more money for your business.
You can also get help along the way or with a TurboTax Live tax expert, available in English and Spanish.