The IRS is increasing the income reporting requirements on businesses, banks, and third-party settlement organizations (known as PSEs – Payment Settlement Entities) in order to increase voluntary tax compliance and improve tax collections.
Businesses that pay vendors, suppliers, and non-employee contractors are required to issue Form 1099-MISC or Form 1099-NEC by January 31 of the following year if the total amount of payments exceeds $600 for the calendar year. Payments made to businesses that are incorporated are generally exempt from this reporting requirement.
Sometimes businesses use credit cards rather than checks. If the vendor is paid by credit card you do NOT need to issue a 1099 for payment. This is because the credit card issuer is required to furnish a 1099-K to the payee if the total amount of transactions exceeds $20,000 and more than 200 transactions (2023).
But what about cash apps such as Cash App, PayPal, Venmo, Zelle, etc.? The answer is – maybe. It depends on the app used.
Cash App, PayPal, Venmo, and other PSEs are required to report all transactions on a 1099-K and send it to the Payee. The 1099-K filing requirement threshold is when transactions total $20,000 or more.
Comment: If your business makes payments to a vendor using these apps and the amount exceeds $600 in a calendar year then you do not need to file a 1099-MISC or 1099-NEC. Instead, these payments will be included in the 1099-K issued by these PSEs directly to such recipient vendors.
However, not all of these third-party settlement organizations are subject to the 1099-K filing requirement due to a loophole in the tax law. In this case, you would need to report the payments on a 1099-MISC or 1099-NEC. But how would you know? We will update the PSE Table below as we get new information. In the meantime, we recommend searching the third-party settlement organization’s website or contact them directly.
Below is a chart of the most popular third-party settlement organizations and how they may report transactions on a Form 1099-K.
Third party settlement organization | Do they issue Form 1099-K? | Will I need to issue 1099-MISC or NEC? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ApplePay | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bill.com | No | Yes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash App | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Google Pay | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Messenger | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PayPal | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SamsungPay | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stripe | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remitly | No | Yes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Venmo | Yes | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wise | No | Yes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Zelle | No | Yes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The IRS is looking at expanding the requirements to include all third-party settlement organizations. If you utilize any of the firms who do not report transactions on a 1099-K, we recommend checking their website on or before December 31st of the 1099 reporting tax year to verify whether they will or will not be issuing Form 1099-Ks.
For more information on gearing up for the 1099 filing season, visit our post on Important Change to Form W-2, Series 1099 E-file Requirements.
