1099-NEC: When You Should & Shouldn’t Be Filing

This post may have affiliate links. Please read the Disclosure Policy for complete details.

This is a prequel to an article about receiving Form 1099-NEC when you aren’t supposed to and how it can cause headaches when the IRS comes looking for money you never really earned but was misreported on your behalf. This is the flip-side for those of you who are the ones on the sending side.

Every year business owners face an issue.

It happens each January, without fail.

They have to decide if sending 1099-NEC forms is necessary.

In some cases it is.

In others, it definitely isn’t.

But there’s a catch these days.

What it basically comes down to is being charged for a service that isn’t necessary.

And by not necessary, I don’t mean “not something you have to do but helpful”.

No, I mean they may be charging you for something you shouldn’t be doing at all.

Something you shouldn’t be doing under any circumstances.

On top of that, they may be doing damage to your reputation.

Or at the very least making people not want to work with you.

As an accountant myself, I’ve heard plenty of stories about it happening.

And the problem which stems from the issue of whether or not to file these forms is:

Being charged to file 1099-NEC forms that shouldn’t be filed AT ALL.

IRS Form 1099-NEC
There are a lot of questions surrounding when you should & shouldn’t file Form 1099-NEC…it starts with knowing that there’s no such thing as “file one just in case”!
Advertisement Article Continues Below

Rules For Filing A 1099-NEC

Some of you may know the rules about working with independent contractors and freelancers.

Some of you might not.

In short, when you work with people who are not employees, you need to report any yearly amounts paid in excess of $600.

This is only for business expenses, mind you–not when you pay for personal things from your business (which you shouldn’t be doing anyway).

That’s the basic rule.

You are required to file a 1099-NEC with the IRS and issue a copy to the contractor.

You’re required to send this information to the individuals and the IRS by January 31st (or the next business day if it falls on a weekend).

There are others–like you don’t issue a 1099-NEC to corporations for regular services.

But those really don’t have any bearing on this particular discussion.

Then there are the penalties if you mess up.

If you don’t file, fail to send the individuals their statements, or misrepresent the information you can face penalties based on the number of forms and how late they are filed.

Things have changed, however, when it comes to who you need to report payments to…

Advertisement Article Continues Below

Why Your Accountant Shouldn’t Be Doing This Work

Many people find change difficult to accept.

It’s even worse when you’ve been doing something one way for what seems like forever only to be told that you have to change your ways going forward.

In this case, the change is in how to report payments to independent contractors.

It used to be that a small business (or any business for that matter) would have to file a 1099-NEC for anyone regardless of the payment type.

Of course, for most of that time, there wasn’t PayPal and only the largest of businesses could afford to accept payments via credit cards directly.

Back in 2011, the IRS changed the way that credit card and third-party payment processor transactions would be reported.

No longer will these types of payments be reported by the individual businesses on form 1099-NEC.

Instead, the processors will be issuing their own tax reporting form, called the 1099-K.

1099 MISC 1099 K rule
Text passage copied directly from page 2 of the 1099-NEC Instructions under the heading “Exemptions” (it still refers to the MISC but applies to the NEC as well)

Why is this important?

(This is the aforementioned catch from the opening section!)

Because this change meant big savings for small businesses which stopped using cash (or checks) to pay their contractors.

They would no longer have to pay for the preparation and filing of 1099-NEC forms because it was no longer their responsibility.

But again, change is hard, and many accountants either couldn’t adapt to comply with the new rule or they outright ignored it.

This is where you’re paying for unnecessary work.

If you are paying all of your bills strictly by credit card or, say PayPal, you should UNDER NO CIRCUMSTANCES be issuing a 1099-NEC to any of the freelancers you hire.

Unfortunately, there are many reports of companies still doing exactly that.

They may simply not have told you what the rules were, to begin with, preying on your trust.

Some may even be using scare tactics–using the fines previously discussed–to scare you into paying them for a service they don’t belong doing.

Others still may simply (wrongly) believe that they are still doing things the “right way” since it’s what has always been done.

There are people even using a rationale similar to this:

We’re filing the 1099-NEC just in case because we can’t be sure the contractor will get a 1099-K”.

Regardless of the manner or reason, you shouldn’t be paying for this service if you paid someone via credit card, PayPal, or any other 3rd party processor that collects tax info for the purpose of issuing a 1099-K.

PERIOD!

You aren’t responsible for what your contractors do…you are only responsible to make sure your company does what is required of it.

Remember…you aren’t the tax police!

Advertisement Article Continues Below

Corporations (Almost) Never Get A 1099-NEC

In the”Rules” section above I mentioned corporations.

This is because under most circumstances, corporations, whether C or S, are exempt from being issued a 1099-NEC.

This is regardless of payment method, meaning even if you pay cash to a corporation you don’t send them a 1099-NEC.

It also applies to other business structures electing to be taxed as a corporation (ie: the Single-Member LLC that files for S Corporation tax treatment).

Don’t believe me?

Is your accountant telling you otherwise?

Have a look for yourself:

1099 MISC S Corporation Rule
(it still refers to the MISC but applies to the NEC as well)

Plain as day, right?

Oh yeah, those exceptions that are mentioned are pretty rare, although there is one very common one which we will get to in the very next section.

Trust me, I’ve had bosses who insisted on sending 1099s to everyone on behalf of clients–even corporations–and I would have to practically yell and shove the instructions in their face to make them relent.

Why?

Because it was wrong to both do the work that wasn’t required and especially to charge the clients for it!

Advertisement Article Continues Below

Sending Attorneys A 1099-NEC

Attorneys.

Lawyers.

Whatever term you use, they serve the same purpose for the 1099-NEC.

Payments to attorneys are always reported on a 1099-NEC regardless of business structure.

1099 NEC Attorney Corporations
From the IRS 1099-NEC instructions for ending a 1099-NEC to attorneys even if they are a corporation

You send an attorney a 1099-NEC unless you paid them with a credit/debit card or PayPal-type service.

Business payments that is.

If you are paying for your attorney’s guidance and expertise on personal matters, then you don’t send a 1099-NEC.

What if you happened to pay for those personal services through your business?

Change your accounting for it from “Legal Fees” or “Legal & Professional” or whatever you named the category to “Distributions” or “Draw”.

You shouldn’t be paying for personal expenses with business money anyway.

Instead, you should pay yourself, then spend the money.

Yes, it’s confusing.

All you have to remember is:

  • Attorney always = 1099-NEC when paying cash/check–the business structure means nothing in this situation.
  • Attorney never = 1099-NEC when paying with debit/credit/PayPal/similar

PAY ATTENTION TO THIS PART BECAUSE IT IS A LITTLE DIFFERENT THAN OTHER TYPES OF PAYMENTS YOU REPORT ON THIS FORM.

In case you are wondering if you send the 1099-NEC or the old 1099-MISC for attorneys, here is the answer:

1099 NEC Payments To Attorneys
Instructions in form 1099-NEC to file this form for attorney services provided to you in the course of business.
Advertisement Article Continues Below

Cash Transfers: You Send A 1099-NEC

With the rise in the number of cash-transfer services, it’s important to take note that none of these systems count as “3rd party processors”.

That means all transactions done using these platforms require a 1099-to be filed.

These are simply “money transfer services” and not actual merchant services account.

Services like:

  • Zelle
  • Venmo
  • Plastiq
  • even bank Bill Pay

There is a huge difference in that money transfer services are supposed to be for personal use, whereas merchant services are for business payments.

If you aren’t giving your tax info to a system, then it is not going to send your partners a 1099-K, which in turn means you must complete a 1099-NEC for all payments made to those who qualify!

Don’t be fooled by services that allow you to fund your account with a credit card, however.

You are still going to be required to file a 1099-NEC for anyone you pay using that method because the transfer service still isn’t a 1099-K provider.

They send the money from their own account and recoup it plus a fee by charging your card so you really aren’t paying those people via credit card.

HOWEVER…

ACH transactions sent using actual 3rd party payment processors such as PayPal, Stripe, or other merchant services systems are exempt from reporting on a 1099-NEC!

Why?

Because even though those payments are being sent from your bank account to your contractor’s bank account, it is being done so via the same clearinghouse system that the credit and debit card transactions are done with.

This means all of the transactions are reported on the 1099-K that the processor files on your partners’ behalf (if they qualify).

Advertisement Article Continues Below

Special Word On Transfer Apps & 1099-NECs

Venmo recently added the ability to use a credit card as a funding source.

Don’t let this confuse you…it doesn’t exempt you from filing a form 1099-MISCs for contractors to whom you send Venmo payments funded from a credit card.

Venmo itself is not a service that provides 1099-NEC or the 1099-K on anyone’s behalf on individual accounts.

Clarification: Venmo does have merchant accounts that qualify for the 1099-K but it’s specifically for businesses that submitted tax info.

Most people are using Venmo with their personal accounts to conduct business so you need to check with those people you pay with Venmo, but the overwhelming majority I’ve worked with use personal Venmo accounts and therefore require a 1099-NEC to be sent.

Neither is Cash App.

Even if you use a credit card to transfer money, all you are doing is funding your own account with cash from the card.

Then the cash is transferred to the recipient’s account.

This means that as long as you use these apps to send money, regardless of the source of the funds, you are still responsible to send the 1099-NEC to anyone you pay in excess of $600 in a calendar year who is not using a “business” account!

The same holds true for any of the other services which let you fund an account with a credit card but send the cash to the other person’s bank account.

It’s a very confusing issue because none of these companies make giving clear guidelines a priority on their sites.

Some, like Square’s Cash App, don’t even have a way for someone like me–a non-user accountant seeking clarification–to access support (you have to have an account or do an end-around and contact square first!)

The problem arising from this is that businesses are allowed to operate on these systems so…

You will need to ask anyone you send money to if they have a business or personal account!

Then based on that info, you will know whether or not to send a 1099-NEC.

Frustrating, I know, but that’s what we have to deal with these days?

Advertisement Article Continues Below

PayPal Friends & Family

Very quickly:

You should not be sending contractor payments via PayPal’s Friends & Family option.

That is specifically designed to send–you guessed it!–friends and family money.

Money to reimburse them for your half of dinner.

Or a gift you both went in on together.

PayPal doesn’t recognize these payments as reportable on the 1099-K so if you pay a contractor with this option, you will have to send them a 1099-NEC.

And the contractor may even have their account closed for misusing the system or at the very least be told they have to convert it to a business account.

Advertisement Article Continues Below

This Is Also Pissing Off Your Partners

Remember how I said that the credit card or payment processor is responsible for reporting the 1099-K these days?

If you are still filing a 1099-NEC on your partner contractors’ behalves, then you reporting duplicate income.

When you report duplicate income, the IRS looks at their income tax returns and sees only part of that being reported.

Then, the IRS goes to your partners looking for the rest of the income that was reported under their tax ID, even though there isn’t any.

What that does is create headaches for your partners because they now have to spend time putting together reports showing that the money you reported is the same as what was reported by the processor and that their tax returns weren’t filed incorrectly.

This leads to lots of wasted time that could’ve been spent making money.

Or, if they have to pay their accountant to do the work, then you are costing them unnecessary spending.

And that my friends, pisses people off!

Do you really want to make life harder for people you have to work closely with and whom you rely on to do so many tasks for your business?

Advertisement Article Continues Below

Get Your Accounting Straight

Look, I know that you may not have a clue about payroll tax rules or even what the hell a 1099-of-any-kind is.

But isn’t that why you pay a tax accountant or the people you run payroll with in the first place.

If you want to get all of this cleared up, the steps are simple:

  1. Ask your accountant why they prepared and charged you for preparing these forms
  2. If they can’t come up with a clearly defined and reasonable answer, fire them and hire an accountant that knows WTF they’re doing.

See, 2 steps are all it takes.

Oh, and please send your apologies to your contractors and let them know that you were not behind it and that you’re sorry they had to go through it.

You may also want to look into a malpractice suit against your old/current accountant since the instructions are crystal clear on this mess.

Advertisement Article Continues Below

Update

I’ve received 2 emails already who have received 1099-NEC forms when they shouldn’t have and one of the people tried contacting the business which sent it. This is the response:

You use the Bluehost 1099-misc on your tax return and the paypal 1099-k is just for reference. You do not put the 1099-k on your tax return. https://www.irs.gov/uac/general-faqs-on-new-payment-card-reporting-requirements

You know what’s funny (or sad? or stupid?) about this response?

The link they provided is a F.A.Q. about reporting requirements for payment processors and it says the same thing that the 1099-NEC instructions state:

Section from IRS 1099-K instructions telling you how to report money that can be reported on 1099-MISC

So, no matter what you reference, the answer is simple:

ANYTHING REPORTED ON A 1099-K DOES NOT GET REPORTED ON A 1099-MISC!!

Advertisement Article Continues Below

Your Turn

If you happen to have fallen into this trap, leave a comment and let everyone know if you questioned your accountant/payroll processor about it and what their response was! And if you are on the receiving end of this debacle of a situation, tell us all too!

.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

135 Comments

  1. I am one year into this entrepreneur lifestyle with my LLC with two other members as my partners. I have a few general questions. If I write a check to a person I worked with who isnt the partner, that was above $600. Do I need to get a 1099 form from that person? What if I paid through zelle and it was above $600, do I need a 1099 or a W2 from that person and do I need to get an invoice as well? Lets say the job was done on December 29th, 2019 but paid January 2020. Which year of the form are they suppose to use, 2019 or 2020?

    1. Thanks Jay!

      First let’s get the logistics cleared up: you only send a 1099-MISC if you did the paying, you don’t get one from them. And a W-2 is only for employees for whom you actually pay wages to ie: withhold and submit taxes and file quarterly/annual payroll tax returns.

      Now, if you paid them via check, cash, or Zelle (or Venmo) in amounts totaling $600 or more per contractor, you need to send them a 1099-MISC. If you paid them less you don’t send a form.

      Time-wise if you paid them in 2020, you file a 2020 1099-MISC by January 31, 2021. If you paid by December 31, 2019 then you file a 2019 1099-MISC by January 31, 2020. Filing means that you send a copy to the contractor and a set of copies for all of the 1099-MISC forms issued to the IRS.

      Hope this clears things up for you!

    2. Got acouple more questions. So how about if my partners take out money from the business or we just withdraw money from the bank acct totaling more than $600. Is there any forms we specifically need? Or any forms for sending money through zelle to our personal bank acct as our payout.

      Also lets say my business takes in investors. They write a check either above $9999 or less than $10,000. For a return, lets say 10%. They get their investment back plus the 10%. My business writes them a check back. Would this require a 1099 misc form as well?

    3. 1099-MISC is a reporting tool mainly for non-employee compensation. Partners and shareholders have different treatment for the money they take out of a business. That will all vary based on the type of business structure you have decided on as well as the agreement in place for how money will be handled.

      Sometimes money will be reported on a W-2, sometimes on a K-1, other times on a 1099-DIV–all depending on the above information regarding the specific setup of your business.

      If you’re looking for more specific info based on your particular circumstances, feel free to book some time for consulting at https://clarity.fm/eric-nisall and we can get into the details.

  2. I would love some clarification on payments through PayPal. I paid contractors through PayPal but using the friends and family function. Do I need to send them a 1099?

    1. Hi Winter!

      If you pay via PayPal I would not send a 1099-MISC to any contractors no matter the selected in-app payment method.

      Just as an aside, it’s not proper to use this feature for the purchase of goods or services, and either you or the other party may be in violation of the TOS as PayPal monitors transactions for this type of thing.

      Regardless, merchant accounts still have the option to receive payment this way so if it’s a contractor then you assume they are registered as such. Since this is a function of a qualified Payment Settlement Entity (PSE) which falls under the guidelines of the 1099-K, again, I’d leave it up to PayPal to deal with if the contractors qualify.

      And for the record–it doesn’t matter if they qualify for a 1099-K or not, you are only responsible to file the forms you are supposed to, you don;t have to worry about other people/businesses.

  3. Hi Eric,

    Your article was very helpful. However, I’m wondering if TransferWise is the same with Zelle and Venmo where there are no 1099-k reporting on their end. Hope you can give your insight regarding TransferWise. Thank you!

    1. Hi Mary.

      TransferWise looks like an international payment system. If the people you work with are not US citizens then they don’t get a 1099-MISC at all so you wouldn’t have to worry. If they are US citizens you might want to check with support over at TransferWise as it would seem like they are simply connecting the bank accounts like Venmo and Zelle and not acting as a Payment Settlement Entity (PSE) that collects tax info to send out 1099-MISC.

    2. Hi Eric, thanks for your reply. I was able to check with their support yesterday via email and said that, “…If you transfer money with us you should disclose and pay any required taxes related to the transfer – but we cannot tell you whether tax applies to your transfer…”.
      But as I mentioned in my reply about their US entity, they double-checked it with their finance team and said that they do issue 1099-K 🙂

    3. There you go–no 1099-MISC needed since they file the 1099-K.

      Makes your life easier!

    4. Hi. Someone might rely on my reply before that transferwise do issue 1099-k. However, I’ve got a precise answer and it seems that they do not issue 1099-k. Here is the reply from their support:

      “1099-k should be issued by PSE, like you mentioned. A PSE is either a merchant-acquiring entity (in the payment card context) or a third-party settlement organization (in the third-party network context). It does not appear that TransferWise meets the definition of a Payment Settlement Entity (either as a merchant-acquiring entity or a third-party settlement organization) required to file Form 1099-K. Firstly, TransferWise is not a bank or other organization that has the contractual obligation to make payments to merchants or businesses in settlement of payment card transactions. TransferWise is not in a business of settling payment card transactions with businesses that accept payment cards as a payment method. Money transfers to or from TransferWise accounts are not related to settlements of payment card transactions. Moreover, TransferWise does not issue any payment cards. Secondly, TransferWise does not qualify as a third-party settlement organization that provides a third-party payment network to enable fund transfers between purchasers and providers of goods and services. Although it is possible that some TransferWise clients established accounts with TransferWise to settle payments between each other as buyers and sellers, TransferWise does not provide standards and mechanisms for settling such transactions and does not guarantee payments to providers of goods and services. Overall, we believe TransferWise should not be considered as having established a third-party payment network.”

  4. Thank you, Eric. This is very informative and well written. I am keeping Quickbooks for someone and they started using VENMO to pay resources this year. They thought this would be treated like PAYPAL and no 1099 would be required. Now I am letting them know that’s incorrect. The VENMO payments are recorded on the CREDIT CARD and them VENMO is paying the resource so on the CREDIT CARD it just says VENMO. I guess I will need a report of all transactions paid via VENMO and the transaction must list the payee and the amount. Then I will have to sum via each PAYEE and determine if a 1099 MISC is required or not and reach out for that resources W9 info. Does that sound correct?

    1. Hey Teri!

      Yes, that is correct–you will need still need to send a 1099-MIC for Venmo payments funded with a credit card.

  5. Hi Eric,

    Great article. First, thank you for answering the question about whether or not to issue 1099-MISC for ACH payments made to vendors/independent contractors through third party payment processors. I had a vendor/independent contractor I paid with an ACH from my business checking account above the $600 threshold for reporting and they required payment through Honeybook. I spent time trying to figure out if Honeybook was similar to PayPal or Venmo or what – then after searching their site saw they issue 1099-K forms to account holders meeting the 200 transaction, $20,000 threshold. So now I won’t issue a 1099-MISC for the vendor/independent contractor.

    I do have another question – all other vendor/independent contractor payments I’ve made throughout the year have been through ACH from my business checking account. Early in the year I used Quickbooks Payroll to facilitate the payments to my vendors/independent contractors and later in the year I used WellsFargo Direct Pay. My understanding is neither of these services report on 1099-K or any other tax forms, so it’s my responsibility to prepare 1099-MISC for my vendors/independent contractors paid in this way above the $600 threshold, correct?

    Also, I’ve made payments throughout the year to attorneys using debit and credit cards. If I used a debit card linked to my business checking account to make any of these payments and it exceeded the $600 threshold, I must also issue a 1099-MISC, correct?

    I appreciate your guidance on how improper it is for accountant’s to issue 1099’s to all vendors/independent contractors without much care for the IRS rules – this is precisely my current situation with my accountant – that’s why I’m trying to go it alone.

    Appreciate any additional clarification you can lend.

    1. Hi Jennie!

      It looks like Wells Fargo DirectPay is simply a transfer system like Venmo and Zelle and not a Payment Settlement Entity (PSE). You’re going to have to file a 1099-MISC for those people whom you paid >$600 using that system. The same goes for QuickBooks Payroll. If you didn’t pay the people as employees, then you need to send them the 1099-MISC for the same parameters.

      Regarding the attorneys, if you paid using your debit/credit card directly–and didn’t use the card to fund a transfer service first–then you don’t have to send them a 1099-MISC. Those payments move to the 1099-K and you aren’t responsible for worrying about whether they qualify or not.

  6. Great article! Currently arguing with my CPA about this. I asked him to issue TWO 1099’s to independent contractors (as we always do) and he issued two additional ones for two LLC (s corp) companies. When I asked him why, he said their rule of thumb is, if they don’t see “inc” after the company name, then it gets issued. I guess my ultimate question is, if we are the client, and instruct/ask for two specific things, and they do whatever the hell the want – who has the ultimate say? Us as the business owners, or the CPA to handle things how they see fit? OF course i will be charged for them as well.

    1. Hello K.

      That is the laziest–not not mention most incorrect–explanation I have ever heard.

      Has your CPA never heard of the LLC taxed as a corporation? That means the business is still an LLC for all purposes except taxes, so it will never have the “Inc.” or “Incorporated” designation in the name. Plus, if you have a correct W-9 form from the vendor, it will say on that form that they are a corporation (C or S, it doesn’t matter) and that is the key.

      As for the last part, I honestly don’t have an answer for that because if you as the client tell me to do something I knowis wrong, I won’t do it no matter what so….yeah it’s kind of a tough question.

  7. Hi Eric,

    Great read, very informative, Thank you! Question…I offer outsourced accounting services to a number of clients. I invoice my clients using QuickBooks Online Invoices. My invoices are emailed to my clients, and have the option to electronically pay the invoice directly from the email via bank transfer, debit card, or credit card. Most of my clients pay via bank transfer, and these ACH transfers are included in my monthly merchant service reports.

    Based on my understanding of your article, since the ACH payments I receive are processed by QuickBooks Merchant Services, those ACH payments should be excluded from 1099-MISC reporting. Is that correct?

    I just had a lengthy chat with someone from the QB merchant support department, and was told that QB issued 1099-K forms will only include credit and debit card transactions. I quoted this section of your article to this agent:

    “ACH transactions sent using actual 3rd party payment processors
    such as PayPal, Stripe, or other merchant services systems are
    exempt from reporting on a 1099-MISC!
    Why?
    Because even though those payments are being sent from your
    bank account to your contractor’s bank account, it is being done so
    via the same clearinghouse system that the credit and debit card
    transactions are done with.
    This means all of the transactions are reported on the 1099-K that
    the processor files on your partners’ behalf (if they qualify).”

    The agent told me the quoted information is correct. Which is a contradiction of what he first told me. I pointed this out, and asked which department I should contact for further clarification. He again told me that QB will only report credit/debit card transactions and that I must issue 1099-MISC for ACH payments processed by Intuit.

    Have I misunderstood something? Do you have any additional information on QuickBooks Online Payments?

    Thank you,
    Michelle

    1. Hi Michelle!

      Some parts are are indeed confusing, and you can ask 10 people the same question and probably receive slightly different answers from all of them.

      I’ve always interpreted it from this page https://www.irs.gov/businesses/understanding-your-form-1099-k:

      in settlement of third-party payment network transactions

      In my mind ACH would be direct bank-to-bank initiated at the bank level by your client like a bill pay transfer, not processed via the merchant account whereby it’s acting as a 3rd party settlement agent.

      Granted, it would be awesome if the IRS would come out and say in plain English “x, y, z are on this form and a,b,c are on that form” because it is certainly getting more complex each time a new app or service pops up.

  8. Great article. Thanks. I am in a situation where I have received a payment of $905 as travel reimbursement for a training program offered by a company. Now they sent me a 1099-MISC with this amount as Non Employee compensation. Is this considered a compensation? I have actually paid the amount out of my pocket and they returned it? Shall I accept 1099-MISC. Thank you so much.

    1. Hi Joice.

      It’s difficult to answer that question without more information. Is this your employer that sent you on the training? Was it the company that offered the training? Did you have a working relationship with the company that reimbursed you and was there and agreement signed which could contain more information?

      I’d suggest speaking with your tax preparer about it when you go to file your tax return.

    2. No it is not my employer. I have no working relationship with that company. There was an agreement signed which is for privacy of the information. No work related agreements. They have put the amount on box number 7 in 1099.

    3. Then it sounds like you have to file Schedule C to recognize the amount on the 1099-MISC and then record the expenses you laid out for the travel as “travel expenses”.

      You really have no other way to handle it, and yes you will have to report the income.

  9. Only an idiot accountant would waste their time on unnecessary 1099 work. We do it as a service to our clients, and usually lose money on them. The time it takes to hunt down the information – eg, “Mike’s auto repair” – is he an individual, a corporation, an LLC? And if an LLC, does he operate as a partnership or Corp? And get their proper EIN or ssn and not a UBI or contractors number… We hate 1099s!

    1. Thanks Sue!

      I hate 1099-MISCs too! If you must then go ahead and file one but don’t waste your clients’ time and money by forcing them to send these things unnecessarily under the guise of “well we don’t know if they will get a 1099-K” or “we’ll send it just in case”.

      Most of the time it’s the accountant being stuck in their ways and wanting to adapt to the new rules or just being unaware of the changes.

      Sometimes, it’s just pure idiocy like one other commenter who said their accountant sends the 1099-MISC to anyone that doesn’t have “inc” in the business name like they never heard of the LLC taxed as a corporation ?

  10. If a friend/family member sends me a couple hunder dollars through cashapp multiple times (not for business) do i have to report that? Or is the $600 a total number and not for individual payments?

    1. No Jimmy, only business payments need to be reported.

      Personal payments like for splitting the checks at dinner or going in on a hotel together doesn’t count, no matter how much.

  11. Eric,

    This has been the most helpful information on 1099-misc I’ve been able to find; thank you!

    One question I can’t seem to gain clarity on is regarding the sale of a property I flipped. At closing I paid a substantial amount to close on the property (realtor commissions, closing costs, etc.). As I understand it, all money at a closing is funneled thru the title company and out to the various participants. The title company is an LLC being taxed as an S-Corp.The title company issues a 1099-S to the IRS but I’m not clear on the following:

    Do I need to send 1099 MISC to the realtors, etc. or is this the responsibility of the title company?

    Because the title company is taxed as an S-corp, am I correct in assuming I do not need to send them a 1099-MISC?

    Thanks in advance for sharing your insights!

    Ken

    1. Hey Ken.

      Real estate has its own set of rules when it comes to taxes but no, I would not issue a 1099-MISC to a realtor. Not unless they did work for you outside of the scope of their firm (ie: individually for you).

  12. You are awesome! Such helpful and clear information. I first read your post a couple years ago, and I returned to it today because I find myself in a “grey area”. I’m hoping you can help. I borrowed a bunch of money last year in connection with the renovation of a commercial building. The bank that lent me the money directly disbursed the funds to contractors. In other words, I approved the vendor invoices, sent them to the bank, and then they wired payment (or sometimes issued bank drafts) to the contractors. In such a situation, who is responsible for issuing the 1099-MISC? It was technically my money going out as payment, but my name wasn’t on the check/wire. I’m grateful for any advice you can offer.

    1. Hey Greg.

      The bank is responsible for issuing the 1099-MISC where required.

      Payments made on behalf of another person. For payments reportable under section 6041, if you make a payment on behalf of another person, who is the source of the funds, you may be responsible for filing Form 1099-MISC. You are the payor for information reporting purposes if you perform management or oversight functions in connection with the payment, or have a significant
      economic interest in the payment (such as a lien). For example, a bank that provides financing to a real estate developer for a construction project maintains an account from which it makes payments for services in connection with the project. The bank performs management and oversight functions over the payments and is responsible for filing information returns for payments of $600 or more paid to
      contractors. For more information, see Regulations section 1.6041(e).

      That comes directly from the 1099-MISC Instructions on page 4 under “Payments made on behalf of another person” https://www.irs.gov/pub/irs-prior/i1099msc–2019.pdf

  13. Eric,
    Would I need to file a 1099 Misc for 2019 for receiving a total amount of $1900 for one year from a part time employer from Zelle for services rendered? Would this fall under the rule you had mentioned earlier about “filing 1099 Misc for any amount received over $600 but under $20,000”?
    Thank You for your assistance Eric.

    1. Hi Susan!

      You don’t file a 1099-MISC as the contractor, the person paying you would do that.

  14. Now that they are changing it to the 1099-NEC, do the same rules apply? Specifically, I want to know if I should avoid filing the NEC if I paid people using PayPal. Thanks!

    1. Hello Kerry!

      The rules do not change, only the form. You continue to follow the same rules you would previously regarding who gets the 1099.

  15. My son makes money online from various sources (Epic Games, Youtube, Support Creator) and pays a couple others more than $600 who have assisted him in performing services. He has a PayPal PERSONAL account that he uses and he selects “Paying for an Item or Services” when sending money to them. Does he have to file 1099NEC forms in this situation? It sounds like PayPal would do this on his behalf, but thought I would ask since it’s a personal PayPal account.  THANK YOU.  This article was really helpful.

    1. Hello Larry.

      When it comes to 1099-NECs and PayPal, as long as your son is using the payments feature (as opposed to the friends and family feature) he shouldn’t be sending tax forms. PayPal will handle all of that for all “sales” transactions should they qualify, but that is all on PayPal. It’s not on your son to worry about if someone qualifies for the 1099-K or not, his responsibility is to follow the rules for himself.

    1. Hi Tatiana.

      If you have a Venmo business account you count for the 1099-K form and not a 1099-NEC. Its an important distinction to make because the majority of people who use the platform do not have business accounts but it’s always best to double-check if you are the sender or to let people know if you are the recipient of Venmo payments.

  16. Thank you for this article! It is helping a lot right now.  One question:  You said payments to attorneys will always go on the 1099-MISC, however, I’m reading that proceeds from a settlement would go on the 1099-MISC, but regular attorney fees should be reported on the 1099-NEC. Which is correct?
    p.s. I was going to read through the comments to see if this question was answered, but I’m at work and can’t go through them all.

    1. Hi Brittany!

      You report the attorney payments on the 1099-NEC, which is for non-employee payments and different than settlements for attorney services which is the 1099-MISC (box 10).

    1. Hello Merry.

      No, payments to an attorney for services rendered in the course of business are reported on form 1099-NEC just like other contractors. If you follow this link you will be taken to the instruction page directly to the section which states this.

      Hope this helped!

  17. Hello Eric,
    I *think* I have read all of the comments and responses but I have an issue that I do not believe has been addressed. What happens if I pay Vendor ABC $300 through Stripe and $300 by check?
    Will Stripe issue 1099-K forms for $300? What do I do about the $300 check payment? Is it wrong to combine both payments into one $600 1099-NEC form? Thanks!

    1. Hey Keith.

      You have to look at the different payment methods individually. If you didn’t pay in excess of $600 using cash/check then you don’t send a 1099-NEC.

    2. Hi Eric, So is there indeed a loophole? If I pay someone $300 via check, $300 via Paypal, and $300 via Stripe, then I am not responsible for creating any 1099s? Will the IRS not consider that I have paid this vendor $900 in total? Thanks!

    3. No, no loophole Keith.

      The reason being is that it’s not your job or mine to be the tax police. If we pay someone an amount via a specific method that requires us to file a 1099-NEC then we do so. If not, we don’t.

      That is our only responsibility–to file what we are required to file and not to worry about whether the contractor will qualify for a 1099-K or even if they will report all of their income.

      We just have to worry about doing the right thing based on what we are supposed to do (and to not do what we aren’t supposed to do).