How to Report Paypal Fees on Taxes When Paying Contractors?

13 Thanks for the explanation! I'm in a similar situation but using Venmo for business. Does the same principle apply? I pay my virtual assistant through Venmo and they charge fees too. Do I report the full amount to the IRS even though my assistant got less?

8 Yes, the same principle applies to Venmo Business transactions. If you're using Venmo for business purposes and paying contractors, you should report the full amount you paid on any required tax forms like 1099-NEC, regardless of the fees. The Venmo fees would be recorded separately as a business expense on your tax return, similar to how you'd handle Paypal fees. This keeps your accounting clean and properly categorizes each type of expense.

17 Does it work with other payment platforms too? I use Stripe and sometimes Cash App for my business payments and get confused about the different fee structures.

22 I'm skeptical about these tax tools. How accurate is it? I've been burned before by software that gave me wrong advice about business deductions.

5 It absolutely works with other payment platforms! I've used it with Stripe, Square, and even international transfer services. It recognizes the different fee structures and categorizes them appropriately. As for accuracy, I was skeptical too initially. What convinced me was that it provides references to the specific IRS guidelines supporting its recommendations. My accountant actually reviewed the results and confirmed everything was correct. They were impressed enough that they now recommend it to their other small business clients.

11 How does this service actually work? Do they just call the IRS for you? Couldn't I just keep calling myself?

3 Yeah right. No way they got you through that fast. I've called the IRS literally 50+ times this month trying to sort out my 1099 issues. Either you got insanely lucky or this is some kind of scam.

9 The service uses automated technology to navigate the IRS phone system and wait on hold for you. When they reach a live agent, they call you and connect you directly. So yes, it's essentially calling for you, but using technology to handle the frustrating wait time. You absolutely could keep calling yourself, but in my experience, you might spend hours redialing and waiting on hold. I had tried calling myself for nearly two weeks before using the service. The time savings was substantial - I was able to work on other things instead of listening to hold music for hours.

19 As far as I know, if the payment was processed through Paypal's goods and services option, Paypal will issue a 1099-K to the recipient if they meet the threshold requirements. However, this doesn't eliminate your requirement to issue a 1099-NEC if you paid them $600+ for services as a business expense. The rules changed recently though, so double-check the current requirements for the filing year.

16 Thanks for the clarification! So basically I still need to issue the 1099-NEC even if Paypal issues a 1099-K. That makes sense - one reports the payment processor's perspective and the other reports from my business perspective.

18 Do you track the fees individually for each transaction or just do a lump sum at the end of the year? I've been trying to figure out the easiest way to handle this.

7 I track them individually for each transaction. Most accounting software can be set up to automatically split Paypal transactions into the payment amount and the fee amount. If you're using something like QuickBooks or Xero, you can create a bank rule that recognizes Paypal transactions and automatically splits them - the main amount goes to your contractor expense account and the fee portion goes to a "Payment Processing Fees" expense account. Makes tax time much easier when everything is already categorized properly.