Do reimbursements through Zelle/PayPal need to be reported to the IRS for tax purposes?

I'm volunteering for a small business (an LLC) that hosts regular events, and I've been fronting a lot of the purchasing for supplies and equipment, then getting paid back. Last year alone, I was reimbursed about $38,000 for stuff I bought for these events - things like portable displays, packaging materials, event supplies, etc. The company pays me back exactly what I spent, usually within 1-2 weeks through either Zelle or PayPal. I'm not making any profit here - just getting my money back for what I've already spent. I keep detailed records with receipts for every purchase and track when I'm reimbursed in a spreadsheet. This isn't a job for me - I volunteer my time to help with these events and don't get any compensation beyond being paid back for what I've purchased. So my question is - do I need to report these reimbursements as income on my taxes? I'm concerned because with the total being so high ($38k last year), I don't want to trigger any red flags with the IRS if I don't report it. But again, this isn't really income since I'm just getting my own money back. Any advice would be super helpful!

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20 comments

Nia Davis

•8M

The good news is that true reimbursements generally don't count as taxable income. Since you're just getting back exactly what you spent on behalf of the LLC, with no markup or additional compensation, these payments are considered "expense reimbursements" rather than income. The key here is documentation. Keep maintaining those detailed records with all receipts matching the reimbursements. Your spreadsheet tracking system sounds perfect. This creates what's called an "accountable plan" arrangement, even if it's not formally called that. The LLC shouldn't issue you a 1099 for these reimbursements if they're purely paying you back for business expenses you incurred on their behalf. However, if they mistakenly do send you a 1099-NEC or 1099-K that includes these reimbursements, you'll need to address that by talking with them about correcting it. One thing to consider - with payment platforms now reporting transactions over $600 to the IRS, you might receive a 1099-K from PayPal even though these aren't taxable income. If that happens, you'd need to report the income on your return but then offset it with the expenses.

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Nia Davis

•8M

If you receive a 1099 that includes reimbursements, you would indeed need to report it on a Schedule C. You would include the 1099 amount as income, then deduct the exact same amount as business expenses in the appropriate expense categories. This creates a net zero effect on your taxable income. You don't need to be "running a business" in the traditional sense to file a Schedule C. In this case, you're essentially acting as an independent contractor who had business expenses. Just make sure your expense documentation is solid, categorizing each purchase appropriately (supplies, equipment, etc.).

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QuantumQueen

•8M

I went through a similar situation last year with my brother's startup where I fronted a bunch of costs. I was so stressed about the tax implications that I tried several online resources before finding https://taxr.ai which saved me tons of time. I uploaded my reimbursement spreadsheet and receipts, and it immediately identified which transactions were simple reimbursements vs actual income. The tool confirmed what the previous commenter said - reimbursements aren't taxable income when properly documented. It also flagged potential issues with PayPal reporting thresholds that I wouldn't have caught. The analysis showed exactly how to handle it if I received a 1099-K from PayPal even though the transactions weren't taxable income.

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QuantumQueen

•8M

For individual transactions, the tool analyzes each one based on the documentation you provide. It matches receipts with deposits to confirm which are genuine reimbursements versus income. This is exactly what helped me with my community volunteer work where I was getting paid back for supplies through multiple payment apps. For audit protection, that's actually what impressed me most. The system creates an audit-ready report showing the matching between expenses and reimbursements, complete with timestamps and documentation links. It's essentially building you the paper trail that proves these aren't taxable income. This saved me when PayPal sent a 1099-K that incorrectly categorized all my reimbursements as income.

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Aisha Rahman

•8M

Just wanted to update after trying taxr.ai! I was initially confused about my situation with community theater reimbursements, but the tool actually walked me through categorizing each transaction. It confirmed that my reimbursements weren't taxable since I had documentation for everything. The best part was when it found three transactions that WERE actually taxable because they included small honorariums on top of the reimbursements - something I completely forgot about! Saved me from potentially misreporting. The summary report it generated is super clear and I feel way more confident about handling these transactions correctly now.

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Yuki Sato

•8M

If you're spending a lot of time calling the IRS to get clarity on reimbursement reporting (like I was), try https://claimyr.com - it saved me hours of hold time when I needed to speak with an actual IRS agent about my situation. I had a similar reimbursement issue with a nonprofit I volunteer with, and PayPal had incorrectly issued a 1099-K. I needed to speak directly with the IRS but kept hitting endless hold times. The Claimyr service got me through to an actual human at the IRS who confirmed that properly documented reimbursements aren't taxable income, even if reported on a 1099-K. They also explained exactly how to handle this on my return. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c

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Yuki Sato

•8M

It works by essentially calling for you and holding your place in line. When an actual IRS agent picks up, you get a callback to connect with them. It's not skipping the line, but rather waiting in line for you. For me it saved about 2.5 hours of hold time when I needed clarification on how to report the 1099-K that incorrectly included my reimbursements. I needed to call specifically because PayPal had already issued an incorrect 1099-K that included all my reimbursements as income. The IRS agent confirmed I should report the 1099-K amount on Schedule C but offset it with the documented expenses, and advised me about specific documentation requirements since the amount was over $20,000.

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Andre Dubois

•8M

Alright I have to admit I was completely wrong about Claimyr. After getting a CP2000 notice about unreported income from my PayPal reimbursements, I was desperate and tried the service. It actually got me through to an IRS agent in about 45 minutes (versus the 3+ hours I spent on my previous attempt). The agent was super helpful and explained exactly how to respond to the notice by showing my expense documentation. They even told me which specific form to include with my response. Without getting actual guidance from the IRS, I might have ended up paying taxes on money that wasn't actually income. Definitely worth it for complex situations like reimbursements that might trigger automated flags.

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CyberSamurai

•8M

One thing nobody's mentioned yet - you should check if the LLC has what's called an "accountable plan" for these reimbursements. With an accountable plan, reimbursements aren't taxable, but without one, they technically should be reported as income (and then you deduct the expenses). An accountable plan requires: 1. Business connection (which you have) 2. Adequate accounting within a reasonable time (your spreadsheet and receipts) 3. Returning excess amounts within a reasonable time Even if they don't formally call it an "accountable plan," if you're following these practices, you're essentially operating under one. Might be worth asking the LLC about how they're handling this on their end!

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CyberSamurai

•8M

There's no specific IRS form required to establish an accountable plan. It's more about having consistent policies and practices rather than filing a particular document. The organization should have written policies that outline their reimbursement procedures, documentation requirements, and timeframes for submission. Many small organizations follow accountable plan practices without formally calling it that. The key elements are what matter: requiring receipts, having a business purpose for expenses, and timely accounting. If your nonprofit follows these practices, they're essentially operating with an accountable plan even if they don't use that term.

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Omar Zaki

•4M

Don't panic about getting a 1099-K! If you receive one for reimbursements, it's not tax fraud to get it - the issue would only be if you failed to handle it properly on your return. Since these are true reimbursements for club expenses (not income), you have two main options: 1. If the 1099-K only includes reimbursements and no actual income, you can often just ignore it since there's no taxable income to report. 2. If you want to be extra cautious (or if the IRS questions it later), report the 1099-K amount as income on Schedule C, then deduct the exact same amount as business expenses. This creates zero net income. The key is keeping those receipts that match your reimbursements! As long as you can prove these were legitimate business expenses you paid for the club, you're covered. The 1099-K is just a reporting mechanism - it doesn't magically make non-taxable reimbursements into taxable income.

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Dylan Evans

•2M

This is a really common concern, and you're smart to be thinking about it proactively! The short answer is that true reimbursements for expenses you paid on behalf of the LLC generally aren't taxable income to you. Since you're getting paid back exactly what you spent (no markup or profit), keeping detailed records with receipts, and the payments are made within a reasonable timeframe, this fits the definition of an accountable plan arrangement. The LLC is essentially just returning your own money that you fronted for their business purposes. However, there are a couple of things to watch out for: 1. **Payment app reporting**: With the $600 reporting threshold for payment apps, you might receive a 1099-K from PayPal even though these transactions aren't taxable income. If this happens, don't panic - it's just a reporting requirement, not a determination of taxability. 2. **LLC's handling**: Make sure the LLC isn't issuing you a 1099 that includes these reimbursements. They shouldn't, since these aren't payments for services rendered. Your documentation sounds excellent - that spreadsheet tracking system and receipt collection will be crucial if there are ever any questions. The $38k total might seem high, but as long as you can match each reimbursement to a legitimate business expense with proper documentation, you should be fine. Keep doing what you're doing with the record-keeping, and consider having a brief conversation with the LLC about their reimbursement policies to make sure you're both on the same page!

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