The 1099-K vs 1099-NEC question used to have a simple answer for most finance teams: 1099-NEC for the people you pay directly, 1099-K is something the payment processors handle. The American Rescue Plan Act of 2021 blew that up by dropping the 1099-K threshold to $600, then the IRS deferred implementation for several years, and the One Big Beautiful Bill Act of 2025 has now reset everything.
For US companies paying 1099 contractors, the two forms still serve different purposes, and the recent legislation actually made the rules cleaner than they have been in four years. This post walks through which form applies in which scenario, what the post-OBBBA thresholds are for 2025 and 2026, and the most common overlap traps.
All claims are sourced from the Instructions for Forms 1099-MISC and 1099-NEC, the Instructions for Form 1099-K, the IRS announcement on the OBBBA 1099-K threshold, the text of the One Big Beautiful Bill Act, and the underlying Internal Revenue Code at section 6041, 6041A, and 6050W.
What Each Form Reports
The two forms cover overlapping payment activity but from different angles.
Form 1099-NEC, Nonemployee Compensation. Reports compensation paid by a payer in the course of its trade or business to a nonemployee (typically an independent contractor) who is a US person. Authorized by IRC sections 6041 and 6041A. The payer that wrote the check (or initiated the ACH) is the filer.
Form 1099-K, Payment Card and Third Party Network Transactions. Reports the gross amount of reportable payment transactions processed for a payee by a payment settlement entity. Authorized by IRC section 6050W. The payment settlement entity is the filer, not the underlying customer.
The structural difference: 1099-NEC reports a direct payer-to-payee relationship. 1099-K reports an aggregated total of payments processed through an intermediary on behalf of a payee.
For most US finance teams paying independent contractors with ACH, wire, or check, the relevant form is 1099-NEC. The team is the payer, the contractor is the payee, no intermediary is in the loop, and 1099-K does not apply.
The OBBBA Threshold Reset
The One Big Beautiful Bill Act, signed into law on July 4, 2025, changed both thresholds in a single piece of legislation.
1099-NEC and 1099-MISC: $600 to $2,000
For payments made in calendar year 2026 and later, the reporting threshold for both Form 1099-NEC and Form 1099-MISC is $2,000. This is up from the long-standing $600 threshold that had been in place for decades.
The new threshold will be adjusted annually for inflation starting in calendar year 2027.
For payments through December 31, 2025, the existing $600 threshold still applies. The Instructions for Forms 1099-MISC and 1099-NEC carry both thresholds for the transition year. A finance team filing 1099-NECs in January 2026 for 2025 payments uses the $600 threshold. The same team filing in January 2027 for 2026 payments uses the $2,000 threshold.
1099-K: Back to $20,000 and 200 Transactions
The 1099-K threshold reset is more dramatic. The American Rescue Plan Act of 2021 had lowered the threshold to $600 with no transaction count requirement. The IRS deferred implementation through transition relief notices for several years, eventually announcing a phased schedule of $5,000 for 2024, $2,500 for 2025, and $600 for 2026.
The OBBBA wiped that out. The Act retroactively reinstated the pre-ARPA threshold: a TPSO is required to file Form 1099-K only when the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200.
The IRS confirmed the new threshold in Fact Sheet 2025-08. The fact sheet notes the reversion applies for all of 2025 forward. A TPSO that had already started complying with the lower $5,000 threshold for 2024 payments may have over-filed, and the IRS guidance addresses how to handle corrections.
Important note: the $20,000 / 200 transaction threshold applies only to third-party network transactions. The threshold does not apply to payment card transactions (the standard credit card flow through merchant acquirers like Visa or Mastercard processing). Payment card transactions are reportable on 1099-K regardless of amount or transaction count, per IRC section 6050W and the Instructions for Form 1099-K.
Who Is a Third-Party Settlement Organization
The TPSO concept is the linchpin of the 1099-K rules. Under IRC section 6050W(b)(3), a TPSO is the central organization with the contractual obligation to make payment to participating payees of third-party network transactions.
The classic TPSO is a peer-to-peer payment app or a marketplace platform that holds a balance for sellers and pays them out. The platform receives funds from buyers, holds them in a central account, and pays the seller. The platform has the contractual obligation to pay the seller, and it has visibility into the gross transaction volume.
Two patterns clarify when a US company is or is not a TPSO.
Not a TPSO: a company paying its own contractors. A US company hires 50 freelance designers and pays each of them directly via ACH from its corporate bank account. The company is not a TPSO. The company is a payer of nonemployee compensation. It files 1099-NEC for each contractor over the threshold.
TPSO: a marketplace platform paying out sellers. A platform connects 10,000 buyers to 5,000 sellers, processes payments centrally, and pays sellers out of pooled funds. The platform is a TPSO. It files 1099-K for each seller whose gross volume exceeds $20,000 and 200 transactions in the calendar year.
The distinction matters because a company can think it is a TPSO when it is not (and over-file 1099-Ks), or think it is not a TPSO when it actually is (and miss a filing obligation entirely).
The Overlap Rule: 1099-NEC vs 1099-K
One of the most important rules in the Instructions for Form 1099-K is the anti-duplication provision. A payment that is reportable on Form 1099-K is not reportable on Form 1099-NEC or 1099-MISC by the same payer.
This rule exists because when a US company pays a contractor through a TPSO (say, a payment platform that the company funds and that pays out to contractors), only one form should be filed for that payment. If the platform is acting as a TPSO and is required to file 1099-K, the company that funded the payment does not also file 1099-NEC.
The practical complication is that many platforms are not actually TPSOs even though they look like one. A payroll-style platform that the company uses to send its own direct payments to contractors (with the platform acting as an agent, not a settlement entity) does not turn into a TPSO simply by being software. The 1099-NEC obligation stays with the company.
When in doubt, finance teams should ask the platform directly: “Are you a TPSO under IRC section 6050W for the payments we process to our contractors through your system, and will you be filing 1099-K to those contractors?” If the answer is no, the company files 1099-NEC. If the answer is yes, the company does not.
Filing Mechanics: 1099-NEC
For 1099-NEC, the mechanics are well-established and have not changed structurally with OBBBA.
Deadline. Form 1099-NEC is due to the recipient and the IRS by January 31 of the year following payment. If January 31 falls on a weekend, the deadline shifts to the next business day. This is earlier than the March deadline for many other information returns.
Electronic filing. Under Treasury Decision 9972 (effective January 1, 2024), payers filing 10 or more information returns in aggregate during the calendar year must file electronically. The aggregate count includes all 1099s, W-2s, and other information returns combined, not just 1099-NECs.
TIN collection. Before paying a US-person contractor, the payer collects a Form W-9 from the contractor. The W-9 provides the contractor’s legal name, address, and TIN (usually SSN or EIN). We cover this in our Form W-9 guide for US companies.
Backup withholding. If a contractor fails to furnish a TIN or furnishes a clearly invalid one, the payer must withhold 24% under IRC section 3406. We cover this in our backup withholding 24% rule guide.
Filing Mechanics: 1099-K
For 1099-K, the filing entity is the TPSO or the payment settlement entity, not the underlying buyer.
Deadline. Form 1099-K is due to the recipient by January 31 and to the IRS by February 28 (paper) or March 31 (electronic) per the Instructions for Form 1099-K.
Electronic filing. Same 10-return aggregate threshold under TD 9972. Most TPSOs file thousands of 1099-Ks and have always filed electronically.
No backup withholding ceiling. The 24% backup withholding rule under IRC section 3406 also applies to TPSOs for payments on Form 1099-K. If a participating payee fails to provide a valid TIN, the TPSO must withhold 24%.
Implications for Cross-Border Cases
For US companies paying foreign contractors, neither 1099-NEC nor 1099-K typically applies.
A foreign person is not a US person. The 1099 series is generally for US persons. Foreign-person US-source income is reported on Form 1042-S, not 1099-NEC or 1099-K. We cover this in detail in our 1042-S guide for US companies paying foreign contractors and our 1099-NEC vs W-8BEN guide.
The corollary: if a US company pays a foreign contractor through a TPSO, the TPSO does not file 1099-K (because the recipient is not a US person and the income may not even be US-source), but the company may have a 1042-S obligation if the income is US-source. The TPSO does not relieve the company of the underlying chapter 3 withholding and 1042-S filing obligations.
A modern contract management platform handles US-person and foreign-person contractors with the right form per contractor at onboarding (W-9 for US persons, W-8BEN for foreign individuals, W-8BEN-E for foreign entities) and the right information return at year-end (1099-NEC for US persons, 1042-S for foreign persons).
Common Mistakes
After working with US finance teams on year-end 1099 filings, these are the patterns we see most often.
Filing 1099-NEC when the payment was through a TPSO. The company processed contractor payments through a platform that is a TPSO. The platform will file 1099-K. The company should not also file 1099-NEC for the same payment. Doing so duplicates the income report to the IRS.
Filing 1099-K when not a TPSO. A company that is not a TPSO under IRC section 6050W decides to “be safe” and file 1099-K for its contractor payments. This is wrong. 1099-K is filed by the TPSO. The company should be filing 1099-NEC.
Using the wrong threshold for the wrong year. A team filing 1099-NECs in January 2026 for 2025 payments incorrectly applies the new $2,000 threshold. The 2025 threshold is still $600. The new $2,000 threshold applies only to 2026 payments (filed January 2027).
Filing 1099-NEC for a foreign contractor. The contractor is not a US person. The right form is 1042-S, not 1099-NEC. The 1099-NEC is rejected at IRS validation because there is no matching US TIN. We cover this in our 1099-NEC vs W-8BEN guide.
Missing the $5 reporting threshold for some 1099-MISC boxes. The $600/$2,000 threshold applies to most boxes on 1099-MISC, but royalties (Box 2) are reportable at $10 and certain payments to attorneys are reportable at all amounts. The Instructions for Forms 1099-MISC and 1099-NEC carry the box-by-box thresholds.
The Bottom Line
For most US companies paying contractors directly, the answer is straightforward. File 1099-NEC for US-person contractors who exceeded the threshold ($600 for 2025 payments, $2,000 for 2026 payments). Do not file 1099-K unless you are actually a third-party settlement organization under IRC section 6050W. Do not file either form for foreign contractors, file Form 1042-S instead.
The OBBBA changes have actually simplified the picture. The $2,000 1099-NEC threshold means fewer small one-off contractor payments require filing. The restored $20,000 / 200-transaction 1099-K threshold means small sellers on payment platforms are no longer flooded with 1099-Ks for personal transactions.
If your finance team is handling a mix of US-person and foreign contractor payments and wants the W-9, W-8BEN, 1099-NEC, and 1042-S workflow handled as a single system, take a look at our Contract Management product. The pricing page covers the per-contract cost.