Pay contractors this way to relieve yourself of 1099 responsibility

by Jan 9, 2021Bookkeeping, Taxes

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Photographers are often in business as contractors for others or have contractors working for them.

Working with contractors brings a whole new level of compliance. You must have a completed & signed W-9 form on file for anyone you pay for services (not products) who are self-employed.

Usually, you need to file 1099’s for contractors you paid $600 or more in January each year.

However, If you pay your contractors through a Third Party Network Transaction, you relieve yourself of the responsibility and no longer have to file 1099’s.

Yes, This has been an often overlooked thing since 2012.
Crazy right!?

The Details

First, I recommend you still obtain a completed and signed W-9 upfront for each contractor to keep compliant.

Next, if you pay your contractors through third party network payment processors like Paypal or on a credit card, the 1099 reporting responsibility falls on the third-party payment processor (Paypal or credit card), not you.

Third-party network payment processors have to report all payments of 20,000 or more on a 1099-K.

That’s it; you don’t have to worry about it 1099’s anymore.

The IRS states:

“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.”

To get you a little more familiar with your new payment options, let’s look at the IRS definitions of Third Party Network Transactions:

 

Cash, Check & ACH — DO NOT COUNT!

It is essential to know that checks, cash, and ACH payments DO NOT COUNT as third party network payments.

Mixed Transactions

My advice is to pick one method to pay your contractors and stick with it. If you mix cash, check, and third party payments, you’ll still need to track and report the cash, check, and ACH payments if they meet the 1099 reporting thresholds.

Please do yourself a favor, keep it simple, pick one method, and use that for ALL your contractors.


RESOURCES

IRS: Third-party Network Transactions FAQ
IRS: 1099 Instructions

Photo by Desola Lanre-Ologun on Unsplash


Have another question you’d like me to add to this list?

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– Tiffany Bastian

As seen on:

1099-NEC (New in 2020)

1099-NEC (New in 2020)

So, what’s the deal with receipts? How long should you keep your receipts, what counts as a receipt, what happens if you lose a receipt?
Did you know there are special requirements for meals and gift receipts – We’ll cover all of this and more.

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