How do I handle Paypal fees on my taxes when paying contractors?

But what about from the contractor's perspective? If I'm the one receiving money through PayPal, do I report the pre-fee amount or post-fee amount on my taxes? I'm confused because it seems like I would be paying taxes on money I never actually received.

From the contractor's perspective, they should report the net amount they actually received ($1,309 in this example) as income on their Schedule C. They can then deduct the PayPal fees ($41) as a business expense on their own tax return, typically under "Commission and Fees" or "Bank Charges." The total income reported matches what was on the 1099, but the deduction for fees reduces their taxable income appropriately. This way, they're only paying taxes on money they actually kept, while still accurately reporting the full amount from the 1099.

Does it work with other payment processors too? I use Stripe and Square along with PayPal and it's a nightmare keeping everything straight for tax purposes.

I'm a bit skeptical... does it actually integrate with PayPal directly or do you have to download and upload statements? And how does it handle recurring contractors vs. one-time payments?

It absolutely works with Stripe and Square too! That's actually one of the reasons I love it - it handles multiple payment processors in one place and reconciles everything automatically. For your question about integration, you can connect your PayPal account directly or upload statements if you prefer. It's flexible either way. For recurring contractors versus one-time payments, it recognizes patterns in your payment history and groups recurring contractors together, making it easy to generate accurate 1099 data, while still tracking one-time payments separately. It's seriously been a game-changer for my bookkeeping.

How exactly does this work? Seems weird to have someone else call the IRS for me. Do they access my personal info or tax details?

Yeah right. I've tried EVERYTHING to get through to the IRS and nothing works. They're literally impossible to reach. I find it hard to believe this actually got you through to a real person.

It's actually much simpler than it sounds. You don't give them any of your personal tax information - they just secure your place in the phone queue. Think of it like a placeholder service. You provide your phone number, and when they reach an actual IRS agent, they connect you directly to the call. You're the one who speaks with the IRS, not them. As for whether it actually works - I was skeptical too! I'd spent almost 4 hours across two days trying to get through. With Claimyr, I got a call back in about 75 minutes with an actual IRS agent on the line. It was honestly surprising how well it worked considering how impossible it usually is to reach them. They just have systems set up to navigate the phone trees and hold times more efficiently than we can as individuals.

Does this work with the basic version of QuickBooks or do I need the higher tier plans? I've been considering switching from my spreadsheet system but don't want to pay for features I won't use.

The basic QuickBooks Self-Employed version does have this functionality, though it's somewhat limited. The QuickBooks Simple Start plan works better if you have multiple contractors since it gives you more detailed reports and tracking options. If you're just tracking a few contractors, the Self-Employed version should be sufficient. But if you have numerous contractors or need more comprehensive reporting for your business, the higher tier plans definitely make things easier with features like automatic 1099 preparation and filing.

Not exactly. The contractor records the full $1350 as gross income (matching the 1099), but then they get to deduct the $41 PayPal fee as a business expense on their Schedule C. This reduces their net income to $1309, which is what they'll actually be taxed on.