1099-K or 1099-NEC
During the recent Pandemic, the gig economy has seen exponential growth. In fact, it is estimated that by 2027, 60-80% of the workforce will be independent with a valuation well into the billions. As a result of this unprecedented growth, the tax requirements of gig workers and businesses who utilize or partner with those gig workers have become more and more scrutinized. Today, we examine two of the most common types of 1099 independent contractor classifications in the last mile delivery space, 1099-K and 1099-NEC.
What is a 1099-K and a 1099-NEC?
1099-K is a tax form for to report transactions using cards such as debit, credit, Venmo, etc. This form is also for settlement of third-party payment network transactions. Conversely, there is the 1099-NEC which stands for non-employee compensation. The 1099-NEC is for situations when someone was paid at least $600.00. They are not an employee. The 1099-NEC form usage is for payments made to independent contractors who are contracted with a business to perform their services. Whereas the 1099-K usage is for a type of self-employed independent contractor who does not maintain any contract with a business to perform their services. The most important distinction however between the 1099-K and 1099-NEC model is who is compensating the independent contractor.
Who is Compensating the Independent Contractors?
In a 1099-K model, the end user/customer is compensating the contractor for their services. This is generally in the form of a delivery fee and tip. This money belongs exclusively to the contractor who is delivering the goods to the end user/customer. They have absolute control over the delivery fee and tip. In a 1099-NEC model, the contractor maintains a contract with a business to deliver to the end user/customer. This is instead of the end user/customer compensating the contractor for the delivery. The business with whom the contractor is contracted with is compensating for the contractor’s services and not the end user/customer.
Solution? Delivery Drivers, Inc. (DDI)
In practice, the above 1099 classifications are much more complicated as far as implementation and maintaining compliance with each model. Both models require a lot of research, time and energy. Ultimately, mistakes can still be made. This results in more money lost and exposure to misclassification liability. However, using a third-party Human Resource company like Delivery Drivers, Inc. will provide peace of mind when dealing with gig workers by ensuring compliance with the proper 1099 relationship and unmatched service.
With over 25 years of experience, DDI will make sure everything is checked off properly. Moreover, DDI will provide the proper support to ensure legal and operational compliance to mitigate liability in the last mile delivery space. If you want to learn more about the different types of 1099 contract models or how a company like DDI can help with your business, contact us today! We are here to answer any questions you may have and together. Get your business operating the way you want it to.