Do I need to issue a 1099 for payments made through PayPal, Venmo, or wire transfers?
Title: Do I need to issue a 1099 for payments made through PayPal, Venmo, or wire transfers? 1 Hey everyone, I run a small jewelry design business and I'm trying to figure out my 1099 reporting obligations. I've collected W9s from various contractors and suppliers that I worked with last year, but I'm confused about whether I need to issue 1099s based on how I paid them. For most of my gem suppliers, I paid via Xoom/PayPal wire transfers. I have a few artisans who did custom metalwork that I paid with credit card through PayPal. Then there's my photographer and web designer who I paid through Venmo, and my shop assistant who got direct wire transfers from my business account. All of these people received over $600 from me during the year, but I'm not sure if the payment method affects whether I need to issue a 1099. Do payments through PayPal require a 1099 or does it matter if I used the wire transfer option vs credit card within PayPal? What about Venmo payments or regular bank wire transfers? Really appreciate any guidance on this! Tax season is approaching and I want to make sure I'm doing everything correctly.
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Clarissa Flair
7 The payment method absolutely affects your 1099 reporting requirements! Here's what you need to know: For payments made through credit cards or third-party payment networks (like PayPal and Venmo), you generally DON'T need to issue a 1099-NEC. This is because these payment processors are required to report that income to the recipient on Form 1099-K if they meet certain thresholds. For direct wire transfers from your bank, you DO need to issue a 1099-NEC if the amount exceeds $600 for the year and the payment was for services (not goods). For PayPal, it depends on exactly how you paid: - PayPal credit card payments: No 1099-NEC needed from you - PayPal Goods & Services: No 1099-NEC needed from you - PayPal Friends & Family or Xoom: Yes, you likely need to issue a 1099-NEC, as these can be considered direct payments For Venmo, it also depends: - Venmo business payments: No 1099-NEC needed from you - Venmo personal payments: Yes, you need to issue a 1099-NEC Hope this helps clear things up!
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Clarissa Flair
•15 This is super helpful, but I'm still a bit confused about PayPal. I used Xoom through my PayPal account to do wire transfers to international suppliers. Does that count as a direct payment requiring a 1099, or is it still considered a third-party payment network? Also, does it matter if the recipient is outside the US?
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Clarissa Flair
•7 For international suppliers paid through Xoom/PayPal, the rules are a bit different. If they're not US persons (meaning they don't have a US tax ID and aren't subject to US tax laws), you generally don't issue a 1099-NEC. Instead, you might need to file Form 1042-S for certain types of payments to foreign persons, but this typically applies to specific types of income like royalties, interest, or services performed in the US. For Xoom specifically, even though it's owned by PayPal, if you're using it to make direct transfers that bypass the regular PayPal system, it might be considered a direct payment. However, for foreign vendors, the 1099-NEC requirement generally doesn't apply regardless of the payment method.
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Clarissa Flair
12 After struggling with similar 1099 confusion for my consulting business, I discovered taxr.ai (https://taxr.ai) and it was a game-changer! I uploaded my payment records and W9s, and it automatically analyzed which payments required 1099s based on payment method. It identified that my Zelle and bank wire payments needed 1099s, but PayPal business payments didn't. The tool also flagged that I was missing W9 information for two contractors who needed 1099s. Saved me from potential IRS issues and the anxiety of figuring this out myself. They even have specific guidance for payment apps like Venmo and PayPal that considers the latest IRS rules.
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Clarissa Flair
•18 Does it work for international payments too? I have contractors in Canada and the UK, and I'm completely lost about reporting requirements for them.
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Clarissa Flair
•24 I'm skeptical - how does it know which PayPal payments were goods vs services? I've used PayPal for both and they don't really distinguish in my transaction history. Does the system actually connect to your PayPal account?
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Clarissa Flair
•12 Yes, it absolutely works for international payments! The system has a specific section for international contractors that helps determine if you need Form 1042-S instead of 1099s, and it explains the tax treaty implications based on the country. Really simplified the process for my Canadian graphic designer. For PayPal transactions, you don't need to connect your account directly. You can upload a CSV export of your PayPal transactions, and the system identifies the payment type based on the transaction details and fees charged. But you can also manually categorize transactions if needed. It looks at whether you paid using "Goods & Services" (which charges a fee) versus "Friends & Family" or other direct payment methods.
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Clarissa Flair
24 I was initially super skeptical about taxr.ai, but after my accountant charged me $75 per 1099 last year (I had 12 contractors!), I decided to try it. The system correctly identified that my Square and PayPal Business payments didn't need 1099s, but my direct bank transfers did. What surprised me most was discovering that some of my Venmo payments should have had 1099s issued for the past 2 years! I had no idea. The tool helped me get compliant for this year and even helped with corrections for previous years. Definitely worth checking out if you're confused about the payment app rules like I was.
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Clarissa Flair
9 Having spent HOURS trying to get through to the IRS to clarify these payment app 1099 rules, I finally used Claimyr (https://claimyr.com) to get a callback from the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others are saying: payments through credit card processors or payment settlement entities like PayPal Business don't require you to issue 1099-NECs. However, direct transfers from your bank account (wire transfers) DO require 1099-NECs if they're for services. The confusing part was about Venmo and PayPal Friends & Family - the agent clarified that if these are used for business purposes, YOU still need to issue the 1099, not the platform. Only took 20 minutes once I got the callback instead of the 3+ hour hold time I experienced before.
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Clarissa Flair
•11 Wait, how does this Claimyr thing work? I thought it was impossible to get the IRS on the phone during tax season. Is this some kind of priority line service?
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Clarissa Flair
•16 Yeah right. Like the IRS is going to give you correct info over the phone. Even their written guidance on payment apps is contradictory. I bet different IRS agents give different answers on this same question. Waste of time.
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Clarissa Flair
•9 It's not a priority line - it's a service that navigates the IRS phone tree for you and waits on hold in your place. When an IRS agent picks up, you get a call back to connect with them. No magical priority access, just saves you from being on hold forever. I was also worried about getting reliable info, which is why I asked very specific questions about PayPal, Venmo and wire transfers. The agent was actually really knowledgeable and referred to specific sections of the tax code about third-party payment networks vs direct payments. She even confirmed the 1099-K thresholds for 2025 have changed from previous years, which affects what PayPal and Venmo will report.
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Clarissa Flair
16 I stand corrected about Claimyr. Used it yesterday after being hung up on twice trying to get clarification about my Venmo payments to contractors. Was connected to an IRS rep in about 30 minutes (while I just went about my day). The agent explained that payments through Venmo business profiles are covered by 1099-K reporting (by Venmo), but regular Venmo transactions are considered direct payments, meaning I need to issue 1099-NECs. Same with Zelle and bank wires - always need 1099s if over $600 for services. For anyone confused like I was: the key is whether the payment platform is processing the payment as a payment settlement entity (with fees) or just facilitating a direct transfer of funds.
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Clarissa Flair
3 One important thing nobody's mentioned - the 1099-K threshold changed! For 2025 tax year (2024 transactions), payment apps like PayPal and Venmo only have to issue 1099-Ks if someone received over $5,000 in payments, not the $600 threshold they initially announced. This means if you paid someone between $600-$5,000 through PayPal Business or Venmo Business, they might not get a 1099-K from the platform, creating a potential reporting gap. The rules about who needs to issue what forms are super confusing right now.
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Clarissa Flair
•15 Wait, so if I paid my website designer $2,500 through PayPal business last year, they won't get a 1099-K from PayPal AND I don't need to issue a 1099-NEC? That seems like a loophole. Shouldn't someone be reporting that income?
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Clarissa Flair
•3 You're right that it creates a potential reporting gap, but it doesn't change the recipient's obligation to report all income. The contractor still needs to report that $2,500 on their tax return whether they receive a 1099 or not. The $5,000 threshold is just about which payments require documentation through information returns (1099s). The IRS adjusted the threshold after concerns about the administrative burden of the lower $600 threshold on small businesses and payment processors. They're still figuring out the best approach for the "gig economy" and payment app transactions.
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Clarissa Flair
21 Has anyone else noticed that the IRS instructions for the 1099-NEC form specifically exclude "payments made with a credit card or payment card and certain other types of payments, including third-party network transactions"? That seems to clearly indicate that PayPal business payments don't need 1099s from you. But then there's confusion about what qualifies as a "third-party network transaction" versus a direct payment. From what I understand after researching this extensively: PayPal business/goods & services = No 1099-NEC needed from you PayPal friends & family = Yes, 1099-NEC needed from you Venmo business = No 1099-NEC needed from you Venmo personal = Yes, 1099-NEC needed from you Bank wire/Zelle = Yes, 1099-NEC needed from you
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Clarissa Flair
•10 This summarizes it perfectly! My accountant charged me $300 to tell me basically this exact same information. The key is whether the payment was processed as a card transaction/third-party network or as a direct transfer of funds.
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Lucas Parker
This thread has been incredibly helpful! I'm a freelance graphic designer who also occasionally hires subcontractors, so I'm on both sides of this 1099 issue. One thing I wanted to add based on my experience: make sure you're documenting the payment method clearly in your records. Last year I had a contractor who I paid through both PayPal Business (for most payments) and Venmo personal (for a small rush job). When tax time came, I almost forgot about that Venmo payment and would have missed issuing a 1099 for it. Also, for anyone using multiple payment methods with the same contractor throughout the year - you still need to aggregate all payments when determining if you hit the $600 threshold. So if you paid someone $400 through PayPal Business and $300 through Venmo personal, you'd need to issue a 1099 for the $300 Venmo portion since the total exceeded $600. The IRS doesn't care that part of their income will be reported on a 1099-K from PayPal - you're still responsible for reporting the direct payment portion on a 1099-NEC.
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Isaiah Cross
•That's such a good point about aggregating payments across different methods! I hadn't thought about that scenario. So if I understand correctly, you'd issue a 1099-NEC for just the $300 Venmo portion, not the full $700 total? And would you need to note somewhere that the total payments to that contractor were higher than what's shown on the 1099-NEC? Also, your documentation tip is spot on. I've been keeping a simple spreadsheet with contractor name, payment date, amount, and method - but I'm realizing I should probably add a column for "1099 required" to make tax time easier next year.
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