How does PayPal report my sales to the IRS? Will I receive a tax Form 1099-K?

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It’s that time of year again, when your accountant wants you to 1099 everyone you’ve given money to above $600 (for 2020 taxes). Unfortunately, many accountants don’t understand how online payment works, so they tell you to get a W9 from us so they can 1099 us. Unfortunately, that’s not correct.

You do not need a W-9 from us or to 1099 Practice of the Practice. 

As a PayPal business account, PayPal already sends us a 1099-K for all of our transactions. Here’s what PayPal says, “If you cross the IRS thresholds in a given calendar year, PayPal will send Form 1099-K to you and the IRS for that tax year, the following year.” Here’s the article for your accountant to reference.

Here’s how the flow goes, so you understand why you don’t need to 1099 us:

  1. You pay for a service through PayPal to Practice of the Practice’s business account.
  2. PayPal gives us money after taking a percent
  3. We deposit that in our bank account
  4. At the end of the year, PayPal sends us a 1099-K to report all income and expenses
  5. Your expenses can be exported to your bookkeeping program, so you can claim those expenses

If you 1099ed us, we would have a 1099-K from PayPal and one from you, so it would look like we made twice as much (and would have to pay double taxes).

A few times you would need to 1099 Practice of the Practice and request a W-9:

  • If you paid by check
  • If you direct deposited to our bank account, this is common with sponsors or speaking engagements
  • If you paid us on cold, hard cash more than $600 (this has never happened and would be kind of weird)
  • Some other circumstance where the payment wasn’t noted

Summary: PayPal already sends us a 1099-K, so if you paid through PayPal you don’t need a W-9 or to 1099 us.

Happy tax season!