If you earn freelance, gig, or business income as a sole proprietor or contractor, you may receive IRS form 1099-NEC (Nonemployee Compensation). This form is how the government knows how much you earned throughout the year — and how much you owe in income taxes.

Tax form 1099-NEC is a form businesses use to report any money over $600 paid to nonemployees, like freelancers or contract workers. Prior to 2020, all nonemployee compensation was reported on IRS form 1099-MISC.

A 1099-NEC is issued by companies who pay you via direct deposit, ACH, check, or cash. If you receive money through a third-party payment app, like PayPal, Venmo, or Zelle, you’ll receive a 1099-K tax form, instead.

It’s possible for a freelancer to receive a combination of 1099-NECs and 1099-Ks from clients or payment processors, depending on their payment methods. Both forms look similar and report the same information — the main difference is how the payments were issued.

If you’re a freelance worker or are self-employed, your 1099-NEC is a vital component to filing your tax return. You’ll need to report any wages earned from all clients and the 1099-NEC helps make this process a little more manageable.

Companies file 1099-NECs for each freelancer, so the IRS will know how much you owe in self-employment tax. It’s important to verify you type in the right amount of income for each 1099-NEC when filing your taxes to avoid a tax penalty.

You may receive this form in the mail or electronically in late January or early February from your clients. Reach out to your client if you believe you should have received this tax form and did not.