What tax forms will you get if you’re an independent contractor or a gig worker? Here’s the rundown!
It may be a new year, full of possibilities and big plans for your independent business. But there’s still a bit of unfinished business from last year — filing your taxes.
If last year was your first year working for yourself, you may be surprised to find out that some of your clients will probably still send you tax forms. And even if you’ve been there, done that with self-employment taxes, there are a few changes for 2022 that could impact the forms you receive.
Here are the tax forms you should look for in your mailbox or inbox as an independent contractor.
Form 1099-K is used to report third-party network transactions. This covers companies that sent you payments even though you didn’t work directly for them. For example, you could receive this form from PayPal if your clients paid you through that platform, or even from a company like Upwork or Jobble if you worked through those platforms.
Here’s where it can get a bit confusing. Prior to 2022, companies only had to issue these forms for people who earned $20,000 over 200 transactions through the platform. For 2022, this threshold was supposed to be lowered to $600 with no transaction threshold. This meant that a lot more people would have received these forms.
But then, on December 23, 2022, the IRS issued a news release delaying the new threshold reporting requirements until next year. So, you will only receive a 1099-K for 2022 if you’ve met the previous threshold.
So, for 2022, you should only receive a 1099-K if you received at least $20,000 over the course of 200 transactions. The IRS is working on issuing guidance about what to do If you’ve already received a 1099-K and you were beneath this threshold.
NEC stands for “non-employee compensation.” You may receive these forms from businesses you’ve worked with as long as you earned over $600 in the year. You may also receive them from a platform like Uber if you’ve earned $600 or more in income directly from the company.
This can get confusing, especially if you earned enough to receive both a 1099-NEC and a 1099-K from a company like Uber.
The 1099-K simply shows what you’ve received from other people through the platform. So, for example, if you drive 300 customers around in your car for Uber, your 1099-K form just shows what those 300 customers paid you through the Uber platform.
But if, while you were driving, Uber paid you more than $600 in bonuses referrals or on-trip promotions, those payments came directly from Uber itself. So, it also needs to issue you a 1099-NEC since you received compensation from the company. Most likely the amounts on these two forms will be different because they are for different types of payments. The amounts on the 1099-K came from your Uber customers; the amount on the 1099-NEC came from Uber itself.
If you’re employed full-time and work gigs as a side hustle, or if you worked for an employer at the beginning of the year before taking your side hustle full-time, be on the lookout for the Form W-2 from your employer.. You won’t have to pay self-employment taxes on this income, but it’s still an important part of filing your taxes.
Getting tax forms can be helpful, but you shouldn’t rely exclusively on them for keeping track of your income. You’re responsible for reporting all your income on your tax return, and you may not receive a form from companies if you earned less than $600 from them.
Also, if you only rely on your tax forms, you may end up over-reporting your income. That means paying more taxes on income you didn’t even earn! This could happen, for example, if many of your clients paid you through PayPal. Let’s say you met the threshold to receive a 1099-K from PayPal. If some of those payments came from businesses that paid you more than $600 over the course of the year, those businesses may also issue a Form 1099-NEC. This means the money you earned from those businesses will be both on the 1099-NEC that they issued and on the 1099-K from PayPal.
One last important thing to note is that you may be able to deduct the fees charged by PayPal and other platforms. PayPal charges a small fee for business transactions, and companies like Upwork can charge freelancers as much as 20% of their fee. Your 1099-K from these platforms shows the gross amount paid to you by your clients, not the net amount you actually received, so make sure you keep track of the fees you pay to platforms. Check with your accountant to see if they are deductible.
Filing your taxes as an independent contractor is a lot easier if you’ve kept track of your income and expenses throughout the year. But even if you haven’t, you may be able to back through your deposits and withdrawals to help you make sure you’re reporting the correct numbers.
When in doubt, it’s always wise to check with a tax professional before filing your taxes. They can help you answer any questions and may even find additional deductions.
This article is not intended to provide financial, tax or legal advice and the information provided may not address your individual circumstances.