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Federal 1099 Filing Requirements (1099-MISC & 1099-K)

Last Updated:
December 4, 2018

In this part, let's look at the key requirements for both the 1099-MISC and the 1099-K. What payments do you need to report and where do you report them? Our goal is to help you better understand your obligation and all the required information you need to collect. Keep in mind there are many types of information returns used for reporting income, but we’ll focus on two of the most common information returns: the 1099-MISC and 1099-K. It is recommended to talk with a tax advisor to understand the reporting requirements for your particular circumstances.

1099-MISC Thresholds and Reporting Requirements

In general, companies must send 1099-MISC forms if they’ve paid a nonemployee $600 or more during the year. But, there are other requirements depending on the type of payments and the relationship between the payor and payee. According to IRS guidance, a form 1099-MISC may be required if a company makes the following types of payments:

  • Royalties: At least $10 in royalties [corresponds with 1099-MISC box 2] A common example of a royalty payment is a payment made to an author for the right to publish or distribute the author’s work.

At least $600 in:

  • Rents: In most cases, this is where rental payments are reported if your business rents property, such as equipment, cars or real estate [Box 1 on the 1099-MISC]
  • Services performed by someone who is not your employee: Examples of services are professional fees paid to attorneys, accountants, engineers, directors, speakers, etc.; repairs to office machines, equipment, etc.; installation services, landscaping services, marketing services, etc. This box is also referred to as “non-employee” compensation [Box 7]
  • Prizes and awards: This applies to general prizes and contest winners that your business has awarded. Yes, even winners may have to pay taxes on prizes. Box 3 is for awards and prizes that are not for services performed and Box 7 is for prizes awarded to non-employees as compensation for services. [Box 3 and Box 7]
  • Other income payments: These type of payments are also reported in box 3. A common example is payments for punitive damages. [Box 3]
  • Medical and health care payments: You must report any payments made in the course of your trade or business to doctors or other suppliers/providers of medical services." Examples include payments for lab work, physical exams, hospital fees/charges, etc. Unlike several other payments types, medical and health care payments must be reported even if paid to corporations. Payments to tax-exempt hospitals are not reportable, only payments to for-profit hospitals are reported. [Box 6]
  • Attorney fees: Payments made to an attorney in the context of a legal settlement are typically reported in Box 14. For any legal services given directly to a company/payor, then the service fees to an attorney are typically reported in Box 7

Form 1099-MISC Is for Business Payments Only

The payments reported on the 1099-MISC should only be for business payments. For example, let’s say a company hired a contractor to redesign the company’s website and paid them $1,000 for the project. The company would send them (and the IRS) a 1099-MISC. But, if the company’s CEO hired an independent photographer to take holiday photos of her family, then the company does not owe that contractor a 1099-MISC because it was a personal, not business, payment.

A Key Exception for 1099-MISC Reporting

The most important exception worth reiterating is payments to corporations. All payments made to a corporation do not typically require a 1099-MISC. This means that if a company makes payments to another company that is incorporated or to an LLC that elects to be treated as a C-Corporation, then this would not be reported on a 1099-MISC. (Unless the company paid for attorney fees. Those do require a 1099-MISC even if the attorney has an LLC treated as a or C-Corp).

1099-K Thresholds and Reporting Requirements

Who sends 1099-Ks?

A payment settlement entity (PSE) is required to file a form 1099-K. What exactly is a PSE? A PSE comes in two forms:

  • Merchant Acquiring Entities (example: banks)
  • Third-Party Settlement Organizations (example: online platforms like Lyft, Airbnb, etc.)

For the sake of this guide, we will focus on Third-Party Settlement Organizations (TPSOs) as they are most relevant for the majority of 1099-K form filers.

In general, a company must meet certain requirements to be considered a TPSO. Those requirements include:

  • The establishment of accounts by a significant number of unrelated parties.
  • An agreement between the organization and the sellers to settle payment transactions.

1099-K filing thresholds

A TPSO is only required to file a form 1099-K when when reporting payments to a participating payee or provider of goods and services vendor or contractor that exceed both 200 transactions and $20,000 during the course of the year.

Do corporations receive form 1099-K?

Yes, they do. Unlike the 1099-MISC, the form 1099-K is sent to both individuals and corporations to report payments. For example, an LLC that elects to be treated as a C-Corporation would not be sent a 1099-MISC but would be sent a 1099-K depending on the payor’s particular obligation.

Do tax-exempt entities receive a 1099-K?

Yes, also unlike the 1099-MISC, TPSOs must issue 1099-Ks to tax-exempt entities like non-profits.  

A 1099-K reports gross payments

One point of confusion for a lot of 1099-K filers and recipients alike is the reporting of gross payments. On the 1099-K, you’re required to report the gross payments which often includes home much was sent to a payee before any processing or platform fees. For example, Kickstarter and Stripe issue Creators 1099-Ks that report the gross amount paid to Creators before the Kickstarter platform fee and the Stripe processing fees.

Does backup withholding still apply to 1099-Ks?

Yes, please see IRS Notice 1430 for more information on backup withholding on the 1099-K.

If payments are reportable on both a Form 1099-MISC and 1099-K, they are only reportable on a 1099-K

According to IRS guidance on form 1099-K:

Payments made with a credit card or payment card and certain other types of payments, including third party network transactions, must be reported on Form1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC.

In other words, if a payor uses a credit card or TPSO to transfer funds to an independent contractor for a payment typically reported on a 1099-MISC, then the payor is required to report those payments on a 1099-K. For example, if a company pays an independent contractor with a credit card for services, then, because the payor used a credit card to pay the contractor, the requirements for a 1099-K apply. And in this particular case the credit card company is required to issue the 1099-K as it falls into the definition of a MAE. But, if the payor sent a payment to an independent contractor via check, then the payment is required to be reported on a 1099-MISC.

Examples of 1099-K Reporting

Let's look at an example of 1099-K reporting to better understand requirements. Imagine you’re a sneaker seller on eBay earning a good portion of your income on the platform. You sell a lot of sneakers every month but rarely more than one pair to the same buyer and buyers are generally paying $70 for your shoes. You’re running a successful business -- but how does the IRS know what it should expect in taxes from you (and, yes, it wants to know)?

It’s unreasonable to expect every customer who buys shoes from you to file a 1099-MISC or report that payment to the IRS. But it is reasonable (Congress and the IRS deemed) for eBay to bear the burden of combining the total amount you’ve earned on the platform selling shoes and report that to the IRS and to you. And the vehicle for that reporting is form 1099-K!

Key Exceptions for 1099-K Forms

There are entities and organizations that may loosely fit the definition of a PSE but do not need to file 1099-Ks according to the IRS.

  • Healthcare networks and insurance carriers may frequently send out payments but are not technically a TPSO and therefore are NOT required to file a 1099-K.
  • In-house accounts payable departments also don’t file 1099-Ks. Yes, they disperse payments but they are within a company -- they are not a third party.
  • ACH, automated clearing houses.  “An automated clearing house merely processes electronic payments between buyers and sellers through wire transfer, electronic checks, and direct deposit. (IRS)” ACH is the process for transferring money, not the processor responsible for reporting.

U.S. Payments and beyond

In general, TPSO’s must file 1099-K for all payments made in the U.S. to a domestic bank account. Payments to non-U.S. payees are subject to special rules. It is recommended to talk with a tax advisor to understand any applicable 1099-K obligations when dealing with non-U.S. payees.

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