Yes, you are correct that you do not need to send Form 1099-MISC.
According to the IRS Instructions for Form 1099-MISC, "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-MISC. See the separate Instructions for Form 1099-K."
In short, PayPal will issue Form 1099-K to your contractor. So you do not need to send Form 1099-MISC.
Thank you PatriciaV. Where would I report the payments I made to her if not via a 1099 MISC?
PayPal will report the income to the contractor for you. Include in your business expenses for whatever services you received.
Great, thank you for the quick answers. I appreciate your time!
PayPal says they only issue 1099ks if there is more than $20,000
The burden of reporting payments through PayPal resides with the payment processor. For payments under the PayPal minimum, vendors are expected to report their own income. You do not need to prepare a 1099-MISC in this situation.
If I own a construction business and fire a sub contractor to do a roof, plumbing etc. is a 1099 the proper way to annotate those payments?
There are two choices in sending money: to a friend, to pay for services. Is the answer the same? I believe I have sent money via friend by mistake (the new dashboard no longer offers a clear choice). So far its only a $300 but could go over the $600.
A second question - if i pay someone $1000, then how does PayPal not sending anything until its over $20k remove me of the obligation to file a 1099?
Your question was posted to a an old thread that has a real mish-mosh of questions about PayPal, 1099"s etc. that may or may not be relevant to your own issue. It would be better for you to re-post your question as a brand new fresh thread --in which you are more specific about your situation. You do not say here why you paid your friend. You did not say if you have a business yourself or if you just paid a buddy for helping you do something around your home, etc. We need more information.
@wiseman Please read the reply directly above your own post.
What about the fees I incurred when sending funds via Family and Family option on PayPaL? Can I include the fees on the 1099 sent to the contractor? He requested that I use this method to pay him. The fees were for his benefit, can I pass the amt on to the contractor?
You can take the fees related to the payments to the contractor as a business expense on your business return (Schedule C). They are not included on the 1099-K issued by PayPal.
Is the original (best) answer to the original question still true now in April 2021? (It was posted in 2019) i.e. that I do not have to submit a 1099-MISC and that PayPal will submit a 1099-K as needed?
I find it hard to believe the IRS would allow a $20,000 loophole:
—i.e. that a service provider could be paid $19,999 via PayPal and not get a 1099-NEC or a 1099K!
I confirmed today via Message from within my client’s PayPal account that PayPal does not issue a 1099K unless the recipient received $20,000 or 200 transactions.
https://www.paypal.com/us/smarthelp/article/will-paypal-report-my-business-sales-to-the-irs-faq729
So what is the authoritative link/reference/website saying that if my client’s business paid for business services > $600 they do NOT need to issue a 1099-NEC to their independent contractor just because payment was issued through PayPal?
No less than 5 of us CPA’s have been on the phone and emailing today discussing this question.
You must send the form if you meet the requirements.
Begin with the IRS, Instructions for Forms 1099-MISC and 1099-NEC, Miscellaneous Income and Nonemployee Compensation,
This takes us to Box 1 on page 10 which states:
What is NEC? If the following four conditions are met, you must generally report a payment as NEC.
• 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.
@AmyC , I don’t think that you saw that this entire thread pertained to the question of payments issued via PayPal, so your answer could be misleading for a lot of people.
I read more after I put up that post and it sounds like a $20,000 tax loophole HAS in fact existed for PayPal payments for about a decade, although it goes away this year, 2022.
I still cannot find authoritative guidance that issuing payments THROUGH PAYPAL gets you off the hook for issuing a 1099-NEC but everyone seems to agree that it does.
So, in the context of this thread, I believe your answer might be wrong, don’t you think? In other words: the right answer is apparently:
You do not issue a 1099-NEC to vendors who you paid through PayPal, for the year ending 12/31/21 because of the Big Loophole.
Even though no one can cite a definitive source for this direction.
Here’s a good article I found on The Loophole:
I did not see the thread and your link won't open; but, I went to the IRS Tax Forum. The IRS was very clear at the Tax Forum that the 1099-NEC stands alone. In fact, there were scenarios where the 1099-k was disregarded. I believe the IRS expects you to follow the 1099-NEC rules. I would rather send a form than find out later that I should have and pay the penalties.
@AmyC ,
It would be worth your time to read the entire thread because another expert, @PatriciaV , earlier in the thread disagrees with your conclusion.
I’m sorry that the link would not open for you but if you Google “PayPal Tax Loophole,” you will find several good articles (Bradford and Bloomberg) and they all indicate that if payments are made via PayPal no 1099-NEC needs to be issued to the recipient.
—I think that is ABSURD so in theory I agree with you, but apparently that has been the law up until 1/1/22, and apparently it has been a well-known loophole.
The articles indicate that the recipient who has received > $20,000 could end up “double-reported” to the IRS if the payer issues a 1099-NEC form and PayPal also issues a 1099K.
However, my client issued 1099-NEC forms last year (for 2020) even though he paid all of his vendors via PayPal and I have confirmed with one of his vendors that they did NOT also receive a 1099K from PayPal in 2020 even though they did receive > $20k.
Definitely need to read the entire thread though for context.
Ha! Yes, the first page of the thread discusses the old 1099-MISC rules, which were correct. Lots of 2019 comments! The IRS jumped ship to the NEC to close some loopholes and then made a big deal out of the $20,000 loophole being shutdown. The number of transactions will no longer matter either. In addition, many states already have the legislation in effect for 2021.
The 1099-K laws changed during the year. I understand that this is a time of big change and upheaval. I can see where the old wording looks good through the end of the year. I can agree that many will follow those rules. If you look at how the thread began, 1099-misc instructions were clear and you could skip the 1099-MISC. However, when I focus on just the NEC wording of today, I believe the IRS should come back and say it was required. The 1099-NEC form, payer's section, says to go online and get the latest rules before filing. For now, if you go to the IRS small business center, select operating a business, you will come to: Paying Independent Contractors
I imagine only cases that end up in Tax Court will matter. I think many people are not aware of the state changes. It will be interesting. I am glad you are aware and concerned.
But back to you, yes, there has been a huge loophole for a long time and it was crazy! You also mentioned that you did the 1099-NEC last year as well. So, I think you are on the side of better safe than sorry. We will keep a weathered eye on the matter!