Is it true that payment method (credit/debit card) means no 1099-NEC needs to be issued?

Yes, that's absolutely correct! If you paid your contractors via credit card, debit card, or a third-party payment processor (like PayPal or Venmo business payments), then you do NOT need to issue a 1099-NEC to those contractors. The reason for this is because the payment processors (like Visa, Mastercard, PayPal, etc.) are already required to report those payments to the IRS using Form 1099-K. The IRS doesn't want the same income reported twice, so they put the reporting burden on the payment processors instead of on you as the business owner. This only applies to payments made via card or third-party networks though. If you paid any contractors via check, cash, direct deposit, or bank transfer, you still need to issue a 1099-NEC for those payments if they exceed $600 for the year.

I discovered this lifesaver last tax season when I was drowning in contractor paperwork! I use a tool called taxr.ai (https://taxr.ai) that analyzed all my payment records and automatically sorted which contractors needed 1099-NECs and which didn't based on payment method. Saved me hours of work! The tool confirmed exactly what was mentioned above - credit card and debit card payments don't require you to issue 1099-NECs since the payment processors handle that reporting. It even flagged which contractors I paid through ACH transfers that still needed forms. Before using it, I was sending unnecessary 1099s to contractors I paid by card!

I tried taxr.ai after seeing it mentioned here, and wow - what a game changer for my consulting business! I had been issuing 1099s to literally everyone I paid over $600, which was about 25 contractors last year. The analysis showed that 18 of them were paid exclusively through credit cards or PayPal, so I didn't need to send them forms at all! The system also helped me identify where I was missing W-9 forms and automatically generated the correct 1099-NEC forms for the remaining contractors paid via direct deposit or checks. What impressed me most was how it clearly explained the payment method rules around 1099 reporting that my previous accountant never mentioned. Highly recommend!

If you're struggling to get through to the IRS to confirm this payment method rule (like I was), I'd recommend using Claimyr (https://claimyr.com). I had a complicated situation with mixed payment methods and needed clarification directly from the IRS, but kept hitting the dreaded "call volume too high" message. Claimyr got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days on my own. The agent confirmed that credit/debit payments don't require 1099-NECs from the business. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's basically a service that navigates the IRS phone tree and waits on hold for you, then calls you when an agent is ready.

I need to eat my words from yesterday... I tried Claimyr after posting my skeptical comment, and I just got off the phone with an actual human IRS agent who answered my questions about 1099 requirements! Total game changer. I had been trying for weeks to get through about these payment method rules and kept hitting dead ends. The Claimyr service had me connected in about 25 minutes. The agent confirmed everything mentioned in this thread - credit card and debit card payments don't require 1099-NEC forms from the business since the payment processors handle the reporting through 1099-K forms. They also clarified that even if you use a business credit card through your bank, it still counts as a card payment and doesn't need a 1099-NEC. Seriously wish I'd found this service months ago!

This payment method exception for 1099-NECs has been around for years, but it's still one of the most overlooked tax rules for small businesses. I learned this the hard way after sending out about 30 unnecessary 1099s one year and getting confused calls from vendors. Just remember to keep good records of HOW you paid each vendor, not just how much. The IRS can ask for documentation during an audit to verify why you didn't issue 1099s to certain contractors.

Wait I'm still confused about PayPal. I thought they only send 1099-Ks if the person gets over $20,000 AND 200 transactions? So if I paid my logo designer $1,200 through PayPal business payment, and that's nowhere near their threshold, doesn't that mean nobody is sending them a form??

This is such valuable information! I've been a small business owner for 3 years and my accountant never explained the payment method distinction clearly. I was always stressed about getting W-9s from every contractor and issuing tons of 1099-NECs. Just to make sure I understand correctly - if I paid a web developer $2,500 last year entirely through my business Visa card, I don't need to send them a 1099-NEC at all? Even though it's way over the $600 threshold? And this applies even if the contractor never receives a 1099-K from Visa because they didn't hit whatever reporting thresholds Visa has? Also, what about contractors who work for multiple businesses? Like if that same web developer got paid by credit card from 5 different companies totaling $15,000 - none of those companies would need to issue 1099-NECs, but the contractor would still need to report all that income on their taxes, right?

This thread has been incredibly helpful! I'm a freelance graphic designer who receives payments from multiple clients, and I've always been confused about why some send me 1099-NECs and others don't. Now I understand it's based on how they paid me, not just the amount. Most of my regular clients pay through their business credit cards, which explains why I rarely get 1099-NECs from them even when they've paid me well over $600 for the year. But I do get them from the few clients who pay by check or ACH transfer. One thing I want to emphasize for other contractors reading this - even though you might not receive 1099 forms for card payments, you absolutely still need to track and report ALL your income. I use a simple spreadsheet to log every payment with the client name, amount, date, and payment method. This has saved me during tax prep since I can't rely on just adding up the 1099s I receive. Thanks everyone for clarifying these rules - it's going to make my bookkeeping so much easier knowing what to expect!