I did about $20k of work for a freelance client this past year and they're just now telling me that they won't be sending me a 1099 because Paypal will be sending me a 1099. However, they made all their payments as Friends & Family, which Paypal doesn't pick up as income or issue 1099s for.
I'm a bit confused as to why they wouldn't want to categorize $20k of contractor expenses. Doesn't that mean they pay less in taxes?
I'll be reporting the income on my own taxes regardless, but trying to figure out what benefit they get, as a business, from essentially paying me under the table vs. issuing me a 1099. Or maybe that's not the right binary and there's something I'm missing here.
Are there any business benefits (legal or otherwise) to NOT issuing 1099s to your freelance contractors?
byu/jessbird intax
Posted by jessbird
13 Comments
The most likely explanation is that they’ve read that when making payments through PayPal, it’s PayPal who issues the 1099. You’re aware of some nuance to that statement, and they’re not. They’re still counting the payment to you as a business expense either way.
Never attribute to malice that which is adequately explained by stupidity.
They can still deduct the expense, it’s not like they can’t deduct it if there is no 1099 issued. They are just mistaken about what kind of PayPal payments are exempt from needing to send the 1099. It saves them som ework, so I can see why they hope to not be able to send it, but they really are supposed to though.
Sounds like they are trying to avoid PayPal fees by mis-characterizing the payments.
probably hiding it from taxes. maybe something shady. who knows.
Right they believe you are getting one from PayPal so if they send you one the IRS is gonna look for 40000 of gross income
I believe that in some states there are workman’s comp ramifications to hiring 1099 contractors. It sounds like they may be too green to even know about this though.
It’s been a few years, but (in California) during workers comp audits for the business I was running there was always a question about which 1099 contractors we hired and how much did we pay them.
Just because they do not send the 1099 does not mean you can’t report it. The 1099 issue is their problem, not yours
I’m guessing they just want to minimize their 1099 compliance work, and its entirely possible that they really do think paypal will send you a 1099-K. But you’re right, they won’t, cause they categorized payments as friend’s and family.
At the end of the day though, you not getting a 1099 isn’t going to hurt you. Its not your responsibility to ensure another taxpayer complies with their obligations, and from you, the IRS only cares about their money. If your accounting/record keeping is good, you’ll be fine.
There is a difference between a 1099nec and a 1099k.
They will still be deducting the expense, I assure you.
They should be giving you a 1099 but it happens all the time that people don’t. Just make sure you report the 20K on your tax return. You won’t be in trouble because they didn’t give you a 1099
PayPal friends and family payments are still subject to 1099-K requirements. It’s just that the threshold for issuing 1099-Ks is much, much higher than the thresholds for 1099-NECs.
When they pay through a third party payment service, the responsibility for issuing 1099s shifts to the processor so that multiple 1099s aren’t issued for the same payments
There is nothing nefarious going on here as a result, and they can still deduct the payments. You still need to report them as income on your return
Their biggest benefit is reducing worker’s comp insurance premiums if they have the coverage in place. If so, their books are subject to an audit annually and each dollar of w9 and 1099 payments to workers accrue workers comp premiums. Could be as high as $0.10-$0.15 on the dollar owed if this is physically risky work.