fbpx

Do I Have to Send 1099 Forms to Contractors Paid Via Credit Card or PayPal?

Share Post

paypal-hands2The deadline for mailing 1099s to contractors for your small business is February 2nd this year, a few days later than the usual January 31st deadline. Before you prepare all of those forms just yet, you’ll want to read up on the regulations concerning contractors paid by credit card or PayPal.

You actually do not have to send 1099 Forms to contractors paid this way. The IRS does not require you to send a form to independent contractors or unincorporated LLCS, even if you paid them more than $600 last year.

Of course, that money is still accounted for and taxed somewhere, right? In fact, the credit card companies and PayPal will handle all the required reporting for these contractor payments. These companies issue a specific kind of 1099 form, called the 1099-K instead.

Instructions for IRS 1099-MISC form can be found here (PDF).

Should I Send a 1099 Form Anyway?

When in doubt, send it out. You may still want to send a 1099-Misc form for contractors you paid more than $600 last year, and that’s completely fine. Your accountant may encourage you to do so, even though it is not technically required.

What if I am the Contractor or Freelancer Receiving the 1099 Form?

If you’re on the other end of the spectrum, and you receive a 1099 from the employer and a 1099-K from PayPal, things can get tricky. When preparing your income tax return, you’ll need to be careful to not double report the income. If you know payment from a received 1099-Misc form was actually paid through a credit card, you’ll just make sure not to add the total of both forms. If you don’t receive a 1099-K from PayPal or a credit card company, you’ll still need to report the income. The key is to not add your 1099-K income to your 1099-Misc income to avoid any discrepancies.

Ben Sutton

Ben Sutton

Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.

Suggested Articles

Do Small Businesses Get Tax Refunds?

In 2021, the average tax refund was $3,039. Small potatoes? Hardly, especially given the economic downturn of the last couple of years. New small business