You’re probably (hopefully!) aware that if your business is a sole proprietorship or LLC and a client has paid you more than $600 in non-employee compensation, they’re required to send you a 1099-MISC form for the just-completed tax year.
But did you know clients who pay you through PayPal or credit card aren’t required to issue you a 1099?
That’s right. Starting in 2011, the IRS put the responsibility of reporting electronic payments on PayPal and the credit card companies. They are required to issue a 1099-K form—but only if you received $20,000 or more. Which means you might not get a 1099 at all.
Honestly, up until yesterday, I wasn’t aware that clients who make electronic payments to me through PayPal weren’t on the hook for sending 1099-MISC. One of my clients who pays by PayPal monthly discovered it when he went to process his 1099s for vendors.
I’m figuring other independent workers AND companies who do business with them aren’t in the know about this either.
With not all clients realizing they don’t need to send 1099-MISC forms if they paid you electronically, you could end up with 1099s from them anyway. That raises the concern of both PayPal or credit card companies AND your client reporting your income (i.e., your income from that client could potentially be reported twice to the IRS). Moral of the story: KEEP ACCURATE INCOME RECORDS. It’s your best defense if discrepancies arise.
Must You Send 1099 Forms to Contractors Paid Via PayPal or Credit Card? via Small Biz Trends
Fast Answers About 1099 Forms for Independent Workers – UPDATED for 2015 via Small Biz Trends
General FAQs on Payment Card and Third Party Network Transactions via the IRS website
Form 1099-MISC, Miscellaneous Income via the IRS website
What Is the IRS Form 1099-MISC? via the Intuit TurboTax website
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The 1099 MISC is as much for your benefit as anything, to prove who you paid the money too.
Be smart tax payers and business owners please.
I agree, Bruce. It’s reassuring to have them in hand and know that my Quickbooks records match. Prior to writing this post, I hadn’t realized that clients who pay through PayPal don’t have to issue a 1099 MISC–it would come through PayPal and only if the $ amount reaches a certain threshold.