Can You Really Have a K-1 and a 1099? – Avoid This Mistake + FAQs

Yes, it’s possible (and common) to receive both a Schedule K-1 and a Form 1099 in the same tax year.

Each form reports a different type of income. A Schedule K-1 reports your share of income from a pass-through entity (like a partnership, S corporation, or LLC), while a Form 1099 reports various other incomes (such as independent contractor earnings, interest, or dividends) paid to you as an individual.

Receiving both forms simply means you have multiple income streams – for example, you might be a part-owner of a business and do freelance work on the side. There is nothing inherently wrong with this.

You will just need to include all the information from both forms when you file your federal income tax return. Each form’s income will be reported in the appropriate section of your return (they are not mutually exclusive).

The IRS expects taxpayers to report all sources of income. If you have a K-1 and one or more 1099s, you will report the K-1 income (which could include business profits, interest, dividends, etc. from the entity) and also report the 1099 income (like self-employment earnings or bank interest) separately.

Having both a K-1 and a 1099 is legal and routine – it simply reflects that you have different types of income that are taxed accordingly.

Double Reporting Danger: Mistakes to Avoid

While having both forms is fine, you should avoid some common pitfalls. Do not double-report income: Make sure the same income isn’t reported on both forms.

For instance, if you’re a partner in a business, the partnership should give you a K-1 for your share of profit – they should not also issue you a 1099 for that same partnership income.

Reporting the same dollars twice (once via K-1 and once via 1099) would artificially inflate your taxable income. Always cross-check that each form represents distinct income streams.

Avoid misclassification errors. A frequent mistake is treating a business owner as if they were an outside contractor. For example, if you are a member of an LLC or partnership, do not have the company issue you a 1099-NEC for work done for that business.

By IRS rules, partners and LLC members aren’t independent contractors to their own partnership – their compensation (or guaranteed payments) should be included on the K-1, not on a 1099. Issuing a 1099 to yourself or another owner can cause confusion and IRS mismatches.

Be careful with self-employment tax and withholding. Neither K-1 nor 1099 income typically has taxes withheld automatically (unlike a W-2 wage). This means you may need to make quarterly estimated tax payments to avoid penalties.

One mistake to avoid is assuming that a 1099 or K-1 “already has taxes taken out” – they don’t. Plan ahead so you aren’t caught short at tax time. Also, if you have both forms, remember that some K-1 income might be subject to self-employment tax, and 1099-NEC income definitely is. Failing to account for these additional taxes is a pitfall.

Finally, avoid deadline problems. K-1s often arrive later (sometimes March or even mid-year if extensions are filed) whereas most 1099s arrive by January or early February. Don’t file your tax return too early if you know you have a K-1 coming. Filing without all forms can lead to the need for an amended return. It’s better to file for an extension or wait until you have every form in hand. Avoiding these mistakes will ensure that having both a K-1 and 1099 is a smooth process.

Key Tax Terms and Forms Explained

Schedule K-1: Ownership Income Statement

A Schedule K-1 is a tax form that reports your share of income, deductions, and credits from a pass-through entity. Pass-through entities include partnerships (Form 1065), S corporations (Form 1120S), and certain trusts or estates. If you are a partner in a partnership, a member of a multi-member LLC, or a shareholder in an S corp, you’ll receive a K-1 each year.

This form shows all the financial items allocated to you by the entity – such as your share of business profits or losses, interest income the business earned, dividends, capital gains, and even specific deductions or credits.

The K-1 is not a standalone income statement like a W-2. Instead, it’s an attachment to the entity’s tax return. For example, a partnership files a Form 1065 return and prepares a K-1 for each partner. The K-1 provides the details each partner needs to include those items on their personal tax return. It essentially “passes through” the income and tax details. Because an entity can have complex finances, the Schedule K-1 can be quite detailed – often several lines long, breaking income into categories (ordinary business income, rental income, interest, etc.).

Important: You generally don’t send the K-1 itself with your 1040 (the IRS gets its copy from the entity). You just report the amounts on the appropriate schedules of your return (for example, partnership K-1 income often goes on Schedule E of your 1040). Keep the K-1 with your records.

Form 1099-NEC: Reporting Freelance and Contractor Earnings

Form 1099-NEC is used to report Nonemployee Compensation – basically, payments made to independent contractors or self-employed individuals. If you do freelance work, gig work, or any contract work, businesses that paid you $600 or more during the year will typically issue you a Form 1099-NEC. This form was introduced recently (starting tax year 2020) to specifically report compensation for services by non-employees, which was formerly reported in Box 7 of the old 1099-MISC. The 1099-NEC will show the total amount paid to you for your services.

Being an independent contractor paid via 1099-NEC means you are considered self-employed. You’ll use the information from this form to report income on a Schedule C (Profit or Loss from Business) or Schedule F (for farm income), and you are responsible for paying self-employment taxes (Social Security and Medicare) on that net income. No federal or state income taxes are withheld on a 1099-NEC by default, so you should plan for that. The form itself is usually a one-pager that the payer must send to you by January 31. If you performed work as a freelancer or consultant in addition to owning a business (K-1), you’ll likely have this form summarizing your side gig earnings.

Form 1099-MISC: Miscellaneous Income and Rent

Form 1099-MISC is another common 1099 form, used to report various types of income that don’t fit elsewhere. Prior to 2020, it was the catch-all for things like contractor pay, but now its roles include reporting rents, royalties, prize winnings, awards, medical/legal payments, and other miscellaneous income. For example, if you rented out a property to a business and they paid you over $600, they might issue a 1099-MISC showing the rent paid. If you received royalty income (from books, music, oil/gas rights, etc.), those typically appear on a 1099-MISC as well.

The 1099-MISC is sent by January 31 (or by February 15 in cases of reporting certain payments like rent) to the recipient. If you receive a 1099-MISC, it means you have income that needs to be reported on your tax return in the appropriate category (for instance, rental income goes on Schedule E). In the context of also having a K-1, a 1099-MISC might represent a different income source – say you have an LLC that gives you a K-1, but you also personally own a rental property that paid you rent (and the property manager issued a 1099-MISC). It’s another piece of the puzzle in total income. Like the 1099-NEC, the 1099-MISC does not withhold any taxes; it’s purely an information report.

(Other 1099 forms exist too: 1099-INT for interest, 1099-DIV for dividends, 1099-B for broker sales, etc. The key idea is that “1099” covers all sorts of non-wage income forms. In this article, when we say “1099,” we’re focusing mainly on the 1099-NEC (self-employment income) and 1099-MISC (miscellaneous income), as those are most relevant alongside a K-1.)

Pass-Through Entities: Partnerships and S Corporations

A pass-through entity is a business structure where the business itself doesn’t pay income tax as a separate entity. Instead, the profits or losses “pass through” to the owners’ tax returns. The owners then pay any tax due individually. The most common pass-throughs are partnerships, S corporations, and multi-member LLCs (which are usually taxed as partnerships by default or can elect S corp status). If you have an ownership stake in such an entity, you receive a K-1 to report your share. This is different from a regular C corporation, which would pay corporate tax and potentially issue you a dividend (reported on a 1099-DIV).

In a partnership or S corp, the K-1 can include various types of income, reflecting the nature of what the business did. For example, if the entity operated a trade or business, you’ll have ordinary business income on the K-1. If it sold a capital asset, you might see capital gain on the K-1. If it earned interest or dividends, those appear on the K-1 as portfolio income. The IRS requires pass-through entities to file informational returns (Form 1065 for partnerships, 1120S for S corps) and furnish K-1s to owners by certain deadlines (generally March 15, or later if an extension is filed).

Importantly, being an owner (partner or S corp shareholder) often means you actively participate in the business or investment. If you work in the business, your income comes via the K-1 rather than a W-2 (partners aren’t allowed to be W-2 employees of their partnership). S corporation owners are a bit different – they can be employees of their S corp and get a W-2 for their salary, with the remaining profit on a K-1. But either way, the profit portion flows through on a K-1 form. So, if you have a side business structured as an LLC or S corp and you also do freelance work for others, you’ll end up with both a K-1 (from your own business) and 1099s (from clients of your freelance work). This is a normal outcome of participating in a pass-through entity while also having separate income sources.

Independent Contractor vs. Business Owner

It’s useful to understand the distinction between being an independent contractor and being a business owner, because it explains why you might get a 1099 in one case and a K-1 in another. An independent contractor is essentially self-employed, but not an owner of the company that pays them. For example, if you’re a graphic designer and you do a project for a marketing firm as a freelancer, that firm will treat you as an independent contractor and issue you a 1099-NEC for your fee. You report that income on your own Schedule C, deduct any expenses you incurred personally, and pay self-employment tax on the net profit. You have full control of your own “business of one” as a contractor.

On the other hand, if you become a part-owner of a company – say you join a partnership or start an LLC with someone – you are no longer just an outside vendor. You’re an insider (owner). The money you earn from that business is not simply “compensation for services” in the eyes of tax law; it’s your share of the business’s profits (even if you also perform work). That is why you get a K-1 from the entity, reflecting your share of the whole pie, rather than a 1099 for a specific payment. For instance, two software developers might form a partnership LLC to sell an app. They split profits 50/50. Each will get a K-1 showing 50% of the net profit. They wouldn’t issue each other 1099s for their work – as owners, their compensation comes via profit sharing (or guaranteed payments via K-1 if arranged), not via hiring each other as contractors.

It’s possible to be both an independent contractor and a business owner, but in different contexts. You cannot be both, simultaneously, for the same work for the same entity (the IRS wouldn’t allow treating an owner as an independent contractor to their own partnership). But you can, for example, own an LLC that gives you a K-1 and separately do gigs for other clients (receiving 1099s). In summary: 1099 = you are paid by someone else for your work (not your own company); K-1 = you are an owner, receiving a share of profits. Recognizing this difference helps you handle each form correctly and avoid misusing one form when the other is appropriate.

Self-Employment Tax Considerations

When you have income from a K-1 or a 1099 (or both), a critical question is whether that income is subject to self-employment tax (the tax for Social Security and Medicare that self-employed individuals pay, equivalent to both employer and employee portions). For 1099-NEC income, the answer is straightforward: yes, if it’s payment for your labor or services, it’s generally self-employment income. You’ll calculate self-employment (SE) tax on your net profit from that work (currently around 15.3% on the first portion of income, covering Social Security up to an annual wage base, and Medicare tax). This is in addition to regular income tax.

For K-1 income, it depends on the type of entity and your role. If the K-1 is from a partnership or LLC (taxed as a partnership) and you are an active general partner (or managing member in an LLC), then your share of the business’s ordinary trade or business income is typically subject to self-employment tax. The IRS treats active partners as self-employed individuals. This means if you have, say, $50,000 of business profit on your K-1 and you materially participate in running the business, you’ll pay SE tax on that $50k, similar to how a 1099 earner would. However, if you’re a limited partner (essentially a passive investor who isn’t actively working in the business), the tax law says your share of the partnership’s income is not subject to self-employment tax (except for any portion labeled as “guaranteed payments” for services). In other words, passive investors with K-1 income avoid SE tax on that income – it’s treated more like investment income.

If your K-1 is from an S corporation, an interesting twist occurs: S corp profit passed through to you is not subject to self-employment tax at all. S corp owners instead are required to pay themselves a reasonable salary (which is subject to normal payroll taxes). The remaining profit on the K-1 is considered a distribution of earnings, not subject to SE tax. For example, if you own an S corp and the business makes $100,000, you might pay yourself a $60,000 W-2 salary (incurring Social Security/Medicare on that) and have $40,000 show up on your K-1 as profit distribution (which you pay income tax on, but no self-employment tax). Meanwhile, had you earned that $100,000 as an independent contractor via 1099, the entire amount would be hit by self-employment tax. This is a key tax-planning difference between operating as an S corp owner vs. a sole proprietor.

Understanding these rules helps you plan. For instance, if you have a mix of K-1 and 1099 income, you might owe SE tax on the 1099 portion and possibly on some or all of the K-1 portion (if it’s partnership active income). It’s wise to calculate this so you can set aside enough money for those taxes. Self-employment tax can be significant, but it also builds your Social Security benefits and Medicare eligibility, so it’s part of the trade-off of earning non-wage income.

Guaranteed Payments to Partners

One term that often comes up with K-1s is “guaranteed payments.” These are amounts paid to partners that are not dependent on the partnership’s profit – essentially a fixed payment (like a salary or a minimum draw). For example, if you and a partner agree that each of you will get at least $30,000 a year from the partnership regardless of profit, that $30k is a guaranteed payment. How do these show up? They are reported on the K-1 (usually in a specific box for guaranteed payments) and treated as ordinary income to the recipient. Importantly, guaranteed payments are subject to self-employment tax for the partner receiving them, because they are essentially compensation for services.

Why mention this in context of K-1 vs 1099? Because a guaranteed payment is, in effect, the partnership’s way of paying a partner for work done, and it replaces what might otherwise have been a wage or a contractor payment. The partnership doesn’t issue a W-2 or 1099 to the partner for that compensation; instead, it’s baked into the K-1. If you’re comparing, think of it this way: a non-owner would get a 1099-NEC for their work, whereas an owner gets a guaranteed payment on the K-1 for their work. Both are taxable as ordinary income and both generally trigger self-employment tax. The difference is in the form of reporting.

A mistake sometimes made is when partnerships incorrectly issue a Form 1099-MISC/NEC to a partner for guaranteed payments. The correct approach is just to use the K-1. If you ever see both a 1099 and a K-1 for what appears to be the same partnership compensation, there’s likely an error. Guaranteed payments belong on the K-1 only. So, if you’re a partner receiving one, look at your K-1 Part III (it will list guaranteed payments separately). You will report that on your tax return as ordinary income (usually on Schedule E, and it flows into the calculation of self-employment tax as well). In summary, guaranteed payments ensure partners are compensated even if the partnership has little profit, and tax-wise they function similarly to 1099 income – just reported via the K-1 form.

Capital Gains and Dividend Income: K-1 vs 1099

Not all income reported on a K-1 or 1099 is business or labor income – you might also have investment-type income like capital gains or dividends. It’s important to understand how those are reported depending on whether you receive them directly or through a pass-through entity. If you personally sell investments (like stocks), you’d typically get a 1099-B from your brokerage showing the proceeds and maybe cost basis, and any capital gains will be reported on your Schedule D/Form 8949. If you personally receive dividends from stocks or mutual funds, you get a 1099-DIV, and you’ll report those dividends (with special tax rates if they’re qualified) on your tax return.

Now, if you invest through a partnership or S corporation, you won’t get those individual 1099 forms for the investment income – instead, the partnership/S corp itself might receive them, and then allocate the income to you via the K-1. For instance, say you are a part-owner of an LLC that owns a portfolio of stocks. The LLC will receive dividends and 1099-DIVs from those investments. On your K-1 from the LLC, you’ll see an entry for dividends (typically box 5 for ordinary dividends, and box 6a for qualified dividends, on a partnership K-1). Similarly, if the LLC sold some stocks and realized capital gains, your K-1 will have capital gain (long-term or short-term) in the relevant lines. You, as the taxpayer, will then report those amounts on your own Schedule D or other appropriate forms, as indicated by the K-1 footnotes or instructions.

The key point: K-1 income retains its character. If it was capital gain in the partnership, it’s capital gain to you (and eligible for lower tax rates if long-term). If it was interest income to the partnership, it shows up as interest income for you (taxed at ordinary rates). By contrast, a 1099-DIV or 1099-INT you receive directly is already categorized for you (dividend, interest, etc.). But either way, you must be careful to not miss these categories. For example, if you have a K-1 and also a 1099-B from selling your interest in that partnership, you need to ensure you’re not confusing the partnership’s internal gains with your own sale. (Selling your partnership interest can trigger a capital gain reported on a 1099-B from a broker or buyer, which is separate from the partnership’s ongoing income on the K-1.)

In summary, having a K-1 doesn’t preclude getting 1099 forms for other investments, and vice versa. You might receive interest or dividend 1099s for personal investments and also have similar types of income via a K-1 from a business. Each must be reported correctly. One advantage sometimes noted: if you invest in certain partnerships (like master limited partnerships or real estate funds), the K-1 may allocate things like depreciation or special tax-favored income that can defer or reduce taxes (sometimes K-1 investments distribute cash that exceeds the taxable income reported, at least in early years). But the trade-off is complexity and potentially multi-state tax filings. With a straightforward 1099-DIV investment (like a dividend-paying stock), you pay tax annually on dividends but get simplicity (no extra state filings just because of that stock). We’ll explore more of these pros and cons next.

Real-World Scenarios: K-1 and 1099 in Action

To make this more concrete, let’s look at a few common scenarios where someone might have both K-1 and 1099 income. We’ll break down each scenario and show how the forms come into play.

Scenario 1: Dual Role – Business Partner and Freelancer

Below is a table summarizing Jane’s situation in two columns:

Scenario 2: Passive Investor with a Side Hustle

Below is a two-column table summarizing Mike’s situation:

Scenario 3: S Corp Owner with Extra Freelance Income

Below is a two-column table summarizing Lina’s scenario:

K-1 vs 1099: Side-by-Side Comparison

Below is a two-column table comparing the two forms:

IRS Rules and Legal Insights

It’s worth reinforcing a few official rules and tax law points regarding K-1 and 1099 situations:

• Partners are not employees or contractors (for their own partnership): The IRS has clearly established that if you are a partner in a partnership, you cannot be treated as an employee of that partnership for tax purposes. This is why partners don’t get W-2s from the partnership. Similarly, you generally shouldn’t get a 1099 for services provided to your own partnership either. All compensation and profit sharing should be reported via the K-1. If an accountant erroneously issues you a 1099-MISC for “consulting” to the partnership in which you’re a member, that’s incorrect. The correct treatment is either to adjust your profit share or use a guaranteed payment on the K-1 for that work.

• S corp owner-employees must take wages: If your K-1 is from an S corporation and you also work in that business, tax law requires that you take a reasonable salary as an employee. You cannot simply take all the income on the K-1 to avoid payroll taxes. The IRS closely monitors this practice, and underpaying yourself a salary can lead to penalties. If you receive a large profit on the K-1 without a corresponding W-2 wage, that may trigger IRS scrutiny.

• Multiple forms for the same activity – check for mistakes: Ideally, each distinct income stream generates one form. If you perform one activity, you shouldn’t receive both a K-1 and a 1099 for it. Mistakes can happen—for instance, if you become a partner mid-year, the partnership should include your entire year’s earnings on the K-1, not issue a separate 1099 for early payments. Always verify that there is no overlap to avoid double counting income.

• Earned Income Credit and other benefits: Certain tax credits distinguish between “earned” income and “investment” income. K-1 income from passive investments is typically considered investment income, which may disqualify you from credits like the Earned Income Tax Credit (EITC). In contrast, 1099-NEC self-employment income is considered earned income and may help you qualify for such credits, provided your income level falls within the limits.

• Court rulings on recharacterization: There have been cases where the IRS recharacterized income that was misreported. If income clearly represents wages or personal service income, it should not be funneled through a partnership to appear on a K-1. The IRS may reclassify such income, subjecting it to higher taxes and penalties. Using the proper form according to your actual role (owner vs. contractor) is crucial.

• Information matching: Both K-1s and 1099s are sent to the IRS. The IRS matches 1099 data to your tax return via your SSN (or EIN), and K-1 data is also expected to be included. Failing to report any of these can result in notices or penalties, so it’s essential to include them all accurately. If you do not receive a form you expect, contact the issuer immediately.

In essence, the IRS framework accommodates multiple forms. Compliance means reporting each form correctly and understanding the differences in tax treatment. The laws, supported by several court rulings, are designed to prevent tax avoidance while allowing legitimate tax planning strategies, such as splitting income between salary and distributions in an S corp.

State-by-State Nuances for K-1 and 1099 Income

Below is a simplified two-column table summarizing state nuances for K-1 and 1099 income. In the second column, details are provided in a summary format per state:

Frequently Asked Questions

Q: Can I receive both a K-1 and a 1099 in the same year?
A: Yes. It’s common to get both forms if you have multiple income sources (e.g. you’re a partner in a business and do independent contracting). Just report each form’s income on your tax return.

Q: Do I pay more tax because I have both a K-1 and a 1099?
A: No. You pay tax on the income from each form, but having both doesn’t create extra tax. Each income type is taxed according to its character, without double taxation simply due to form variety.

Q: Where do I report a K-1 and a 1099 on my tax return?
A: A K-1’s information is reported on various parts of your return (e.g., Schedule E, Schedule D), while a 1099-NEC (self-employment) is reported on Schedule C. Tax software guides you in placing each correctly.

Q: My partnership gave me a K-1. Should they also give me a 1099 for money I received?
A: No. If the money is related to your role as a partner, it should appear only on the K-1. Partnerships must not issue 1099s for partnership income that is already reported on the K-1.

Q: I got a K-1 instead of a 1099 from an investment. Why?
A: Likely because you invested in a partnership or LLC. Investments in corporations usually yield 1099s (e.g., 1099-DIV), while partnerships pass income through a K-1.

Q: If I have K-1 income, is it considered self-employment income?
A: It depends. K-1 income from an S corp is not self-employment income; however, K-1 income from an active partnership (or guaranteed payments) is typically self-employment income. Passive K-1 income generally isn’t.

Q: Can I use business deductions against both K-1 and 1099 income?
A: Yes, but differently. For 1099 income, you claim deductions on Schedule C. K-1 deductions are taken at the entity level and reflected in the K-1, with limited additional deductions on your return.

Q: I live in one state but received a K-1 (or 1099) for income from another state. Do I have to file two state returns?
A: Yes. You file a nonresident return in the state where the income was earned and claim a credit on your home state return to avoid double taxation.

Q: Does K-1 income qualify for the 20% QBI deduction?
A: Often, yes. If the K-1 is from a qualified business and meets IRS criteria, it may qualify for the QBI deduction. Investment income does not qualify.

Q: Can I contribute to a retirement plan or IRA based on K-1 or 1099 income?
A: Only if the income is considered “earned.” Self-employment income from a 1099 and active K-1 income (or guaranteed payments) can qualify. Passive K-1 income does not count as earned income.

Q: Which is better for taxes: being paid on a 1099 or as a K-1?
A: Neither is inherently better. Each form’s tax treatment depends on your overall business structure and income type; the optimal choice depends on your specific financial situation.

Q: I got a K-1 with a loss. Can I use it to offset my 1099 income?
A: Possibly. If the K-1 loss is from an active business with sufficient basis and isn’t limited by passive loss rules, it may offset other income. Passive losses usually cannot offset active income.

Q: I received a 1099-K as well—is that similar to a K-1?
A: No. A 1099-K reports gross payment transactions (e.g., from credit card processors), not the type of income allocation seen on a K-1. It is used alongside other 1099 forms for self-employment reporting.

Q: Do I need an LLC or corporation to get a K-1?
A: Yes. K-1s are issued by partnerships, LLCs, S corporations, trusts, or estates. Sole proprietors, who receive 1099s, do not receive K-1s.