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

[Cabosmm]

This will be incorrect  under the credit card payment rule 

[mariacasby]

I am a sole proprietor.  Some organizations pay me by credit card for my services, and others pay me by check, and others pay me sometimes by check and sometimes by credit card.  My credit card payments are processed through Paypal and all of these payments are reported on a 1099-K.  I get a pile of 1099-NEC forms from those organizations that pay by check.  But organizations that pay using both both checks and credit cards also tend to report all of the payments on a 1099-NEC, including the credit card payments.  Thus, those credit card payments are thus double-reported and double-counted by the IRS.  Because of this, for the last three years, I have received a whopping bill with penalties of $20,000-$30,000 from the IRS for underreporting my income because I don't report the income that is double counted. After I write to the IRS, they accept my explanation and the bill goes away.  How can I write my return with Turbotax so that I don't get this IRS "correction" letter in the mail?  

[iable]

It is probably asking too much to ask your clients to keep track of what should and should not be included on the 1099. My guess is your only option is to accept either checks or credit card on a per client basis.

[BillM223]

@mariacasby

I would go to General Income in Business Income for Schedule C and enter a General Income item that says "adjustment for duplicate 1099-K and 1099-NEC income", followed by the negative dollar amount.

I can't guarantee that the IRS won't wonder about this, but at least you will have reported all the income on the 1099-Ks and 1099-NECs and then adjusted within Schedule C to be correct.

It's a cleaner solution than just not reporting income that the IRS "knows" you got.

[skogensover]

I've read that currently, we need to send 1099s to people paid via Paypal Friends and Family accounts. You don't send 1099s to people paid solely from Paypal business accounts.

[RobertB4444]

That's not quite correct.  

Your requirement is to issue a 1099-NEC or 1099-MISC to anyone that you paid more than $600 to in a calendar year that you are taking a business deduction for.  That requirement has not changed.

Paypal, CashApp, Venmo and all of the other online money moving apps have always been required to issue a 1099-K to any users that received $20,000 or more in a calendar year.  The new requirements are that they issue the 1099-K to anyone who receives $600 or more in a calendar year.  

These requirements were set to go into effect for tax year 2022 but have been postponed by the IRS until tax year 2023 so you may or may not receive a 1099-K this year for activity on Paypal or one of the others.  

If you do it needs to be included on your tax return.  So if you receive one that shows money that you received from friends or family as gifts or reimbursements then you should contact the company that issued it to you and request a corrected 1099-K.  

If you don't want to/aren't able to get the corrected form in time then you will need to include the amount shown on the 1099-K as 'business income' on a schedule C.  You would then need to create a business expense that matches the amount you received from 'friends and family' and call that expense 'reimbursement' or something like that.

[iable]

@RobertB4444 

If I pay a vendor via Credit Card and issue a 1099 and then the Credit Card company issues a 1099 for the same payment, wouldn't the income be reported twice to the IRS?

[Vanessa A]

Not really. The credit card company will issue a 1099-K. You would issue a 1099-NEC or 1099-Misc.  These are totally different forms. The IRS looks at the 1099-K differently.  It is more of a compliance form instead of an income reporting form.  

Basically, if someone receives a 1099-K for say $32,000 and only reports income of $10,000 to the IRS it will raise a red flag so the IRS will take a deeper look.  If you receive the 1099-K for $32,000 and report total income of $85,000, for the most part, the IRS will assume the amount on the 1099-K  has been included in the total reporting of your income.

There is no specific place to report the income shown on the 1099-K on your tax return. It is simply another method the IRS make sure all income is being reported. 

[Opus 17]

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@skogensover wrote:

I've read that currently, we need to send 1099s to people paid via Paypal Friends and Family accounts. You don't send 1099s to people paid solely from Paypal business accounts.

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If you are a business, you are required to issue a 1099-NEC or a 1099-MISC for certain payment that you make to other businesses (subcontractors, vendors, etc.).  This includes sole proprietorships, independent contractors, partnerships, and LLC.  You don't need to issue a 1099 if the contractor or vendor you are paying is an S- or C-corporation.   It doesn't matter what kind of account is used to pay the money, and in fact, even if the payment is made in barter, you must issue a 1099 if the dollar value is more than $600.

You do not issue any 1099 form for personal expenses.

The payment processor may be required to issue a 1099-K, but that is also never issued by an individual.  Just because the payment processor issues a 1099-K does not mean the money is considered taxable income, but it means the IRS will be taking a closer look at it. 

[iable]

I didn't realize the CC company issues a 1099-K, I just knew it was a 1099 and assumed it was the same as the one we issue.

Thanks for pointing that out!

[Opus 17]

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@iable wrote:

I didn't realize the CC company issues a 1099-K, I just knew it was a 1099 and assumed it was the same as the one we issue.

Thanks for pointing that out!

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Correct.  The 1099-MISC and 1099-NEC specifically tell the IRS "My business paid this person $X amount for goods or services."  The 1099-K is for the payment processor to report any kind of financial activity, the activity might or might not be taxable.  

[drmorello]

Hello-Have read this thread and just want to see if I understand for my situation:

We have a 2nd home that we have used for personal use AND short term rented in 2022 thru Airbnb. We've paid a property manager who has an LLC, commission and cleaning fees exclusively by credit card. The total amount is less than $20K and 200 transactions. Based on previous discussion and IRS statement re credit card payments, I think we should NOT issue her a 1099. 

Thoughts??

[ZhuoliA]

Yes, you are correct that you don't need to issue a 1099-K because the total amount is less than $20k and 200 transactions. However, you still need to issue a 1099-NEC to the property manager for her services if the payment is more than $600. Please be aware that the 1099-K and 1099-NEC represent two different reporting requirements.

Please see the 1099-K reporting requirements from the IRS for more information.

Please see the 1099-NEC reporting requirements from the IRS for more information.

@drmorello

[Opus 17]

@drmorello 

You would never issue a 1099K because you are not a credit card processing service or a bank or a financial institution.

However, you are required to issue a 1099-NEC because you made payments more than $600 in the course of your business to someone else. You are also required to issue a W-9 to your vendor to collect their tax number, and keep this with your other records.  (If the vendor indicates on the W-9 that they are an S-corporation or C-corporation, you are not required to issue a 1099. You still need to keep the W9 with your other records in case you are audited.)