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1099k and independent web designers

You may have heard that you do not need to send a 1099-NEC (formerly called 1099-MISC) to a contractor if you paid them through PayPal, even if they made more than $600.

It’s pretty confusing and you should confirm with your CPA first (this blog doesn’t offer legal or tax advice) but I hope my recent research will give you a few new perspectives on how to manage small business tax reporting.

NEW RULES

As of 2022 the trigger for PayPal (or any 3rd party payer) to send a 1099k is reduced to $600. It used to be $20,000 (or 200 transactions).

WHO’S A REAL FRIEND?

If you pay with PayPal’s “friends and family” option (no fees) you are required to send the contractor a 1099-NEC. In other words, PayPal will not send them a 1099k if you use the “friends and family” option. PayPal will only include in their 1099k payments that are marked as “business” payments and those payments are always charged a fee (usually 3.49% + fixed fee of around 0.49 USD).

Venmo is also a 3rd party payment processor – they also ask for each payment if it’s to “friends” (like a repayment of borrowed money or splitting a bill) or for a business. I think this is only an option if you have business payments enabled for your account. The fee is lower: 1.9%+$0.10.

I think Square and all credit card payments (and payment services like Wise.com) don’t have free options so all those payments will be reported on a 1099k.

Zelle is always free of fees so banks are not going to ever send a 1099k.

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