Do you have to issue a 1099-Misc for a payment made with a credit card?

[Opus 17]

If you, as a business, pay another business more than $600 in a year, you must issue a1099-NEC, regardless of the method of payment.  Certain businesses are exempt, like S-corporations.  You are required to give the contractor a W9 form, to collect their Social Security number or federal tax number. If they claim to be an exempt type of company, they will check the box on the form W9 and return it to you and you must keep that with your other business records for at least six years, in case you were audited, to prove why you did not issue a 1099 yourself.

(The rules about 1099-Ks apply if you hire a contractor via UpWork or Patreon and pay the intermediate company.  If you pay the contractor directly, you must issue the 1099-NEC.)

You report the gross amount that you paid. If the contractor received less than the gross amount due to service charges or other fees, they will deduct that as an expense on their tax return.

[MSD11_20]

"You report the gross amount that you paid. If the contractor received less than the gross amount due to service charges or other fees, they will deduct that as an expense on their tax return."

Hey, I have a question regarding this. We have an inner group in our company. Two of our managers have their own team. The payroll of their team is included in our regular payroll and I have been recording these payments as advances to the two managers (or dues). The agreement is we will deduct the payroll expenses from the commission payments of the managers. How do we handle the 1099s of these two managers and their team? which one is better (1) issuing 1099s to both team members and the managers (at the net) or (2)issuing the 1099s at gross to the managers and have them issue 1099s to their team members?

[Opus 17]

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@MSD11_20 wrote:

"You report the gross amount that you paid. If the contractor received less than the gross amount due to service charges or other fees, they will deduct that as an expense on their tax return."

Hey, I have a question regarding this. We have an inner group in our company. Two of our managers have their own team. The payroll of their team is included in our regular payroll and I have been recording these payments as advances to the two managers (or dues). The agreement is we will deduct the payroll expenses from the commission payments of the managers. How do we handle the 1099s of these two managers and their team? which one is better (1) issuing 1099s to both team members and the managers (at the net) or (2)issuing the 1099s at gross to the managers and have them issue 1099s to their team members?

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What kind of business is it?  98% of the time, a business is not allowed to issue a 1099 and a W-2 to the same employee.  If the person is a regular employee, then all their compensation for work performed must be included on their W-2 and is subject to state and federal income tax withholding, employment taxes, unemployment insurance, workers comp, and anything else required by state or federal labor law.  How you internally allocate funds between regular pay and bonuses really makes no difference--it's all wages to the employees. 

[MSD11_20]

oh just to clarify, the Managers are 1099s as well. 

From June to October, they hired their team as a W2 then transitioned into 1099 this November.

[Opus 17]

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@MSD11_20 wrote:

oh just to clarify, the Managers are 1099s as well. 

From June to October, they hired their team as a W2 then transitioned into 1099 this November.

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I don't feel comfortable about this situation.  You can't "hire" an "employee" and then "transition your team" to the status of independent contractor, at least not legally.  Whether a worker is an employee or an independent contractor is controlled by many factors and working conditions, and unless those factors and working conditions also changed, then the people may be misclassified, subjecting your company to substantial penalties. 

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

Assuming the designation is legitimate, then who you pay depends on your relationship to the parties.  Suppose you contract with Amy to perform a project for specified compensation.  If Amy has the authority to hire whomever she pleases as subcontractors (Bob and Cathy), and Amy determines what parts of the project they work on and what they will be paid, or Amy could do the entire project on her own without help, then Bob and Cathy are Amy's subcontractors.  You pay Amy the price for the contracted service, and Amy pays her subcontractors, whomever they may be.  If the company contracts with Amy, Bob and Cathy to perform a project, then all 3 are contractors of the company, even if the company assigns Amy to be the project leader.

And, you really should have written contracts with all your contractors that already spells all this out.  I suggest a legal review of the entire situation by a qualified tax attorney or enrolled agent. 

[BrendaS83]

Company paid for salesman’s (1099 vendor) vehicle repairs via company credit card. Can I include the charge on the vendor’s 1099?

[JoannaB2]

It depends. If your company paid someone for at least $600 of the year, then your company needs to issue 1099 misc form, whether it was paid in cash, check, or credit card.  

See, form 1099 Misc, for more information.

[Rho_23]

Paypal or credit card companies only have to issue a 1099-K on transactions over $20,000 or 200 transactions. The amounts over $600 but less than the threshold basically fall into a void. It's still reportable but know 1099 is issued.

Just a side note, it's not advisable to pay someone as a friend of family because you lose the protections paypal offers when buying goods or services if you don't do it as a business payment.

[iable]

@LeonardS 

It has been my understanding that we shouldn't send a 1099 when a contractor is paid by credit card. The credit card processor is responsible for issuing a 1099-K.
I looked this up to verify and found these:
https://www.ericnisall.com/sending-1099-nec
https://www.irs.gov/payments/payment-card-transactions-faqs

Thanks.

[DianeW777]

The information from the IRS states clearly who must file Forms 1099-K with them for payments. It's not usually any individual.

Who Must File

Every payment settlement entity (PSE) or other party which submits instructions to transfer funds to the account of a participating payee, in settlement of reportable payment transactions, must file an information return (Form 1099-K) with respect to each participating payee for that calendar year. The PSE is business used as an outsource for collection of fees for various companies.  The Form 1099-K is filed by the payment settlement entity.

This is not the same as Form 1099-NEC. See the Instructions here.

The PATH Act, P.L. 114-113, Div. Q, sec. 201, accelerated the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31 and eliminated the automatic 30-day extension for forms that include NEC. Beginning with tax year 2020, use Form 1099-NEC to report nonemployee compensation.

What is NEC? 

If the following four conditions are met, you must generally report a payment as NEC. Then file that with the IRS and the payee.

• You made the payment to someone who is not your employee.

• You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).

• You made the payment to an individual, partnership, estate, or, in some cases, a corporation.

• You made payments to the payee of at least $600 during the year.

[Opus 17]

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@iable wrote:

@LeonardS 

It has been my understanding that we shouldn't send a 1099 when a contractor is paid by credit card. The credit card processor is responsible for issuing a 1099-K.
I looked this up to verify and found these:
https://www.ericnisall.com/sending-1099-nec
https://www.irs.gov/payments/payment-card-transactions-faqs

Thanks.

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I'm actually somewhat confused on this.  The instructions for form 1099 say that a form is not needed for credit card payments.

https://www.irs.gov/instructions/i1099msc

However, a 1099-K is usually issued by third party payment processor, like Square or PayPal.  I'm not aware that MasterCard or Visa issue 1099-K forms.  So if you hire a contractor and pay by credit card and the contract accepts direct payments and does not use a third party settlement company, there's no way for the IRS to get notified of the payment except by your own 1099.  So I don't really see any difference between paying with cash, a credit card, or check, when you -- for example -- hire a landscaper for the outside of your business or a paving company to paint new stripes on your parking lot.

I suspect the instructions are somewhat confused and out of sync with the regulations, but I don't have tike to dig through the actual regulations to see who is required to issue what form.

[iable]

If it is the credit card processors' responsibility to send tax forms, it's not our responsibility nor problem and may be incorrect for us to send a 1099.

[iable]

@DianeW777 

On the page you linked to, there is a direct link to "Form 1099 K" on the left. This forum wouldn't let me post the URL. It is a bit more than 1/2 down the page. It states:

Form 1099-K.

Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-NEC. See the separate Instructions for Form 1099-K.

[iable]

And to close this out (probably), the contractor who started all of this by asking about her 1099 informed me that she did get one from her credit card processor.

Thanks.

[Cabosmm]

As 2011 you are not mandated to report a 1099 of the payment was made by credit card no matter the amount. 
the 600 dollar payment only apply to cash and check payments .