Q. And what happens if if I report the expense and they don't report the income?
A. A red flag will be waived at the IRS. Depending on the other person's overall income tax status, a notice may or may not be sent.
Depending on the details, that person (or you) may owe FICA (social security and medicare) tax on that income. FICA has a lower threshold than income tax (as little as $433).
