What to Do With a 1099-K and 1099-NEC Overlap

Receiving both a Form 1099-K and a Form 1099-NEC for the same work is a common source of confusion for freelancers and small business owners, creating uncertainty about how to report income without overpaying taxes. This article clarifies the purpose of each form, explains the circumstances that lead to this reporting overlap, and provides guidance on how to correctly reconcile and report this income.

Understanding Form 1099-K

Form 1099-K, “Payment Card and Third Party Network Transactions,” is an informational document sent to taxpayers and the IRS. It is not issued by your direct clients but by Payment Settlement Entities (PSEs). A PSE is a company that facilitates payments, such as a bank processing card transactions or a third-party settlement organization (TPSO) like PayPal, Stripe, or Square. These entities report the gross amount of payment transactions they processed on your behalf.

The amount reported in Box 1a of Form 1099-K represents the total gross value of the transactions processed, before any fees, commissions, or refunds are taken out. This means the figure on the form may be higher than the actual amount you received. The form should only include payments for goods and services, not personal transfers like gifts or reimbursements from friends.

The federal reporting threshold for Form 1099-K has been a subject of recent changes. For tax year 2024, a TPSO is required to issue a Form 1099-K if it processed more than $5,000 in payments for you. This threshold is part of a phased implementation of a lower limit.

Understanding Form 1099-NEC

Form 1099-NEC, “Nonemployee Compensation,” is a tax document used by businesses to report payments made to individuals who are not on their payroll. If a business pays an independent contractor or freelancer $600 or more for services during a year, that business is required to issue a Form 1099-NEC to the individual and file a copy with the IRS.

The income reported on this form is specifically for services rendered by a non-employee, such as fees or commissions. Unlike Form 1099-K, which comes from a payment processor, the 1099-NEC comes directly from the client that paid you for your services.

The $600 threshold is the trigger for this reporting requirement. The amount reported in Box 1 of the 1099-NEC represents the total compensation you received from that specific payer.

The Source of the Reporting Overlap

The confusion of receiving both forms for the same income arises from two separate reporting obligations placed on two different entities by the IRS. The first obligation is on your client, who must send a Form 1099-NEC if they pay you $600 or more. The second is on the Payment Settlement Entity (PSE) that processed the payment.

A specific IRS regulation is at the heart of this issue. According to the instructions for Form 1099-NEC, payments made with a payment card or through a third-party network transaction should not be reported on a 1099-NEC. The responsibility for reporting those transactions shifts to the PSE, which must report them on Form 1099-K.

Despite this rule, many businesses still issue a 1099-NEC for payments made through third-party networks. This can happen because the business is unaware of this exclusion, or their accounting software cannot differentiate between payment methods. Businesses may also issue the form out of caution to ensure compliance, inadvertently creating a duplicate report.

For example, a client pays you a $5,000 project fee using Stripe. At year-end, Stripe, as the TPSO, issues a Form 1099-K that includes this $5,000 in its gross total. Your client might also send you a Form 1099-NEC for the same $5,000 payment, leading to the reporting overlap.

Reconciling and Reporting on Your Tax Return

When you receive both a 1099-K and one or more 1099-NECs, you must report your total income accurately without duplication. Gather all the forms you have received and identify which payments on the 1099-NECs are already included in the gross amount shown on your 1099-K.

Compare the payer information on each 1099-NEC with your accounting records and transaction details from your payment processors. For example, if you received a 1099-NEC from “Client A” for $2,000 and your records show they paid via PayPal, that $2,000 is included in the total on your PayPal-issued 1099-K. This income must only be reported once on your tax return.

For sole proprietors and independent contractors, business income is reported on Schedule C, “Profit or Loss from Business.” You must report your total gross receipts on Line 1 of this form. To calculate this number, start with the gross amount from Box 1a of your Form 1099-K.

Next, review your 1099-NEC forms. Add to your total any income from a 1099-NEC that was paid through a method not covered by your 1099-K, such as by check or direct bank deposit. Do not add income from any 1099-NEC that you have confirmed is already included in the 1099-K total.

For instance, if your 1099-K from Stripe shows $15,000, and you have a $5,000 1099-NEC from a client who paid via Stripe and a $3,000 1099-NEC from a client who paid by check, your correct gross receipts would be $18,000. This total is the $15,000 from the 1099-K plus the $3,000 check payment.