Simplify the year-end filing experience for contractors with embedded payroll
Head of Payroll Operations
It seems like everyone has a side hustle these days. As the gig economy grows, so too have payments recorded on 1099 forms. As new apps rise to make our lives simpler, recording contractor payments has become anything but. In this blog, we’ll take a look at how 1099 forms are supporting new due dates and payment models, and how a payroll strategy can help make life simpler for contractors.
1099 forms are essential for gig and contract working models
There are more than 20 different types of 1099 forms that individuals may receive throughout their lifetime. They range from common forms like 1099-Misc (Miscellaneous Income) all the way to 1099-G (Certain Government Payments).
Both the 1099-K and the 1099-NEC have made a resurgence with new properties in 2022. Let’s zoom in on these forms and see how they may duplicate the information represented on each other.
Originally, the Form 1099-K was for individuals who logged at least 200 business transactions, or earned at least $20,000 for products and services in a calendar year. As of 2022, the 1099-K is now also being used as an income summary sent to anyone who earned at least $600 in business transactions in a calendar year through a payment app.
How does this look today? If a freelance designer uses a payment app, like Venmo, to collect payment from their clients, and they make at least $600 this year, Venmo will send them a 1099-K. The 1099-K will summarize their earnings (received through Venmo) for the calendar year. Venmo will also send a matching 1099-K copy to the IRS. Note that the 1099-K is sent from the payment app, and NOT the business.
Now let’s say you are a company using the services of a contractor, then you are probably familiar with the 1099-NEC (Non-employee Compensation). Form 1099-NEC is the main form used for reporting income not considered W-2 wages. 1099-NEC reports amounts for anyone who received compensation from a company where they were not an employee but performed services of some kind.
Generally, a 1099-NEC must be produced for any independent contractor who made $600 or more for services rendered for a business in a calendar year. A 1099-NEC will be provided to the contractor with a matching copy sent to the IRS.
The difference between the two forms is that the 1099-NEC is provided to the contractor from the business that used their services, while the 1099-K is provided by the payment app they used to receive payment.
Duplicate 1099 forms can cause confusion come filling time
If you are a company using a contractor and you are paying them (at least over $600) through a payment app, then you will be sending them a 1099-NEC and their payment app will be sending them a 1099-K for the same payment. The contractor is now left to file with duplicated income because they will have the $600 reported on the 1099-NEC from your business, and they will also see the payment of $600 reflected in their 1099-K provided by the payment app.
However, if the company decides to sign the contractor up through their payroll platform and connect the contractor with a bank account, the company will still send them a 1099-NEC, but those same funds will not be reported through the payment app and will not be recorded on the 1099-K. Paying contractors through a payroll platform, and not directly through a payment app, will save the contractor potential pain when filing their taxes. Bonus points, it also saves the company time from recording those app payments on a 1099-NEC since their payroll platform will take care of it.
Embedded payroll makes contractor payments simple
Check supports contractor payments through our platform. We generate the 1099-NEC at the end of the year for all non-employees paid through our system. The next time you are about to send a freelancer a payment through Venmo, stop and consider onboarding them to your payroll platform—they’ll thank you later.
If you’re curious how Check can help you improve your contractor payment experience, please reach out!
The content provided here is for informational purposes only. You should not construe any such information or other material provided as legal, tax, investment, financial, or other advice.
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