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Author Topic: 1099-K issue - why are agencies sending out 1099s if Paypal reports it as well?  (Read 5731 times)

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« on: November 11, 2012, 21:00 »
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I didn't know how to word it anymore precise than that.

Please excuse if I have missed any specific information from our agencies that pay us via Paypal but here is my issue.

According to various sources online including the IRS web site it appears that if I exceed the 200 transactions a year AND receive more than $20,000 a year that Paypal will issue a 1099-K for me.

As far as I understand this means I will be taxed for the amount Paypal sends out on the 1099-K as well as the 1099s I will get from various agencies.

Naturally, I don't want or have to be double taxed BUT how am I supposed to prevent duplicate reporting?

According to this source: http://www.ecommercebytes.com/cab/abn/y12/m01/i02/s02

specifically this part:

Quote
... If you issue a 1099-MISC to a vendor or subcontractor, youre supposed to exclude any amounts paid by debit, gift or credit card or PayPal. Thats to avoid duplicate reporting to the IRS. Payments by cash or check, however, still must be included on those 1099s. Thats going to complicate bookkeeping for coffee shops, restaurants and contractors. It could actually lessen paperwork for those who make all vendor payments electronically, Hunsberger said.


I would have to tell SS to send me an updated 1099 stating I made nothing because Paypal's 1099-K will list this income already?

I apologize upfront if I misunderstand something and would greatly appreciate some clarification as I'm sure it affects a few others here who do get paid via Paypal and exceed these above mentioned limits.

I will consult with a tax advisor at some point but I was hoping from some aspiring pros who they handle this situation.

Thanks in advance.


lisafx

« Reply #1 on: November 11, 2012, 21:21 »
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I'm sure there's a workaround an accountant can do.  But I agree with you, this causes needless confusion and seems like it would be a red flag for the IRS. 

My solution was to switch some of the bigger paying agencies to Moneybookers.  That way I don't reach the $20 threshold on paypal. 

Not recommending anyone not pay their taxes, BTW.  Just trying to avoid getting 1099s twice on the same income. 


velocicarpo

« Reply #2 on: November 11, 2012, 21:36 »
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Don`t use Paypal.

« Reply #3 on: November 11, 2012, 22:06 »
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Since I don't hit the requirements, I don't give my info toPayPal .

« Reply #4 on: November 11, 2012, 22:27 »
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Don`t use Paypal.

you keep on saying that but the true is that millions keep on using it everyday, never had an issue on the latest perhaps 6 or 7 years (ebay, online shopping and later agencies payouts)

RacePhoto

« Reply #5 on: November 11, 2012, 22:45 »
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Yes, it does say AND so anyone needs 200 transaction and $20,000 running through PayPal before anything gets mailed.

I've never had a problem, with PayPal since they opened. Seems that being in the USA has something to do with that. Even getting paid from a Canadian source was easier with PayPal than getting a foreign check mailed to me.  (bank wanted to hold it two weeks)

Never had my account locked and I have had $3000 transactions come from South America. Seems that most of the issues have to do with where you live and anything that starts to look like money laundering. Never had to pay an exchange fee. So I'd say location makes a big difference.

But to answer the OP. The requirement for agencies is over $600 by law. They can report less if they wish, just that at $600.01 is the trigger and they must report. PayPal has a different limit and is all sources, so it's not the same thing. Does that help explain it? You could go over $20,000 and 200 transactions, with eBay and only one Micro payout, so it's not all about us, it's the whole system.


velocicarpo

« Reply #6 on: November 11, 2012, 22:49 »
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Don`t use Paypal.

you keep on saying that but the true is that millions keep on using it everyday, never had an issue on the latest perhaps 6 or 7 years (ebay, online shopping and later agencies payouts)

There are many people who had serious issues. But I guess it is the same with paypal as with smoking. As long as you are not affected you can continue and say "nahhh, these things don`t happen to me". Ignorance is a bliss.

Anyhow. My answer was adressing the OPs issues with double 1099 reporting. In this case not using paypal or limiting the use of paypal is a practical solution to avoid that issue. Like it or not.
« Last Edit: November 11, 2012, 22:58 by velocicarpo »

RacePhoto

« Reply #7 on: November 11, 2012, 23:01 »
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Don`t use Paypal.

you keep on saying that but the true is that millions keep on using it everyday, never had an issue on the latest perhaps 6 or 7 years (ebay, online shopping and later agencies payouts)

There are many people who had serious issues. But I guess it is the same with paypal as with smoking. As long as you are not affected you can continue and say "nahhh, these things don`t happen to me". Ignorance is a bliss.

Anyhow. My answer was adressing the OPs issues with double 1099 reporting. In this case not using paypal or limiting the use paypal is a practical solution to avoid that issue. Like it or not.

It's not double reporting. Think about it. One place (the agency) has to report at $600 another (PayPal) at $20,000/200 transactions neither one has anything to do with the other. And I doubt that PayPal just pulled that number from the air, without the IRS telling them what it's going to be.  :)

What country are you in? I keep seeing you comment on fees and PayPal and things that don't happen to me or anyone I know. Just wondering if it's your location?

velocicarpo

« Reply #8 on: November 11, 2012, 23:57 »
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Don`t use Paypal.

you keep on saying that but the true is that millions keep on using it everyday, never had an issue on the latest perhaps 6 or 7 years (ebay, online shopping and later agencies payouts)

There are many people who had serious issues. But I guess it is the same with paypal as with smoking. As long as you are not affected you can continue and say "nahhh, these things don`t happen to me". Ignorance is a bliss.

Anyhow. My answer was adressing the OPs issues with double 1099 reporting. In this case not using paypal or limiting the use paypal is a practical solution to avoid that issue. Like it or not.

It's not double reporting. Think about it. One place (the agency) has to report at $600 another (PayPal) at $20,000/200 transactions neither one has anything to do with the other. And I doubt that PayPal just pulled that number from the air, without the IRS telling them what it's going to be.  :)

What country are you in? I keep seeing you comment on fees and PayPal and things that don't happen to me or anyone I know. Just wondering if it's your location?

On double reporting: yes, this might be true. However, I am not the OP and this was one of his concerns.

On paypal: this does not happen to anyone? Are you kidding me? There are like 5 domains exclusively created for paypal problems and at least one mayor mass-lawsuite in the US who was settled (through payments by paypal) before getting to a court decision. At least know what you are talking about. I won`t put all the links here again and again and again. I am tired about this discussion. 

« Reply #9 on: November 12, 2012, 06:20 »
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looks like Sean is using paypal, should I be worried velocicarpo?

velocicarpo

« Reply #10 on: November 12, 2012, 10:03 »
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looks like Sean is using paypal, should I be worried velocicarpo?

Many People are using paypal. A small percentage runs into problems. If you happen to be one of those you are in trouble, If not, you are lucky.
You should understand that I do not have any advantage in telling my experience. It is not like I recommend any specific competitor or get referrals lol. I fail to understand why people feel offended when someone is reporting bad experiences with a company they use. Usually experience is valuable. I would never work with a company which has a TOS like PP or if a friend gives me a warning. Nor do I feel offended if you use paypal.If you want to ignore the opinions and experiences of all People who made bad experiences with a company you like than do so. I think those ones are more afraid of having to rethink their behavior but in no case Im see the necessity to offend constantly those ones who made bad experiences. 

Beyond that, I do not want you PP Fanboys to hijack Clickclicks thread. He asked if he can avoid the double 1099 and my recommendation would be to use another comp to transfer the money before reaching the 20000 limit of PP. Practical, fast and no need to consult an accountant.
« Last Edit: November 12, 2012, 10:08 by velocicarpo »

« Reply #11 on: November 12, 2012, 11:14 »
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Back to the original topic...

It sounds like the 1099-K isn't really a 1099, but more of an auditing system to make sure that there isn't a huge discrepancy between the income you are reporting and the money that Paypal says you are receiving in the 1099-K. How that is entered on your tax forms (or if it is)... I'm not really sure.

EmberMike

« Reply #12 on: November 12, 2012, 11:21 »
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I don't care if PayPal wants to issue this form. They're not claiming to have paid me this money, just facilitating the transactions. The companies issuing the funds paid me. And I'm claiming all of that income, so there's no issue.

I plan to ignore this PayPal 1099. It's not telling me anything I don't already know, and it's not useful to my accountant or the IRS.

Honestly, I pretty much ignore most microstock 1099s. Every year, at least 1 or 2 of them report incorrect figures. I think they're all useless. I trust my numbers, I report accurate income, and I would have no problem backing up my returns if I'm ever audited.
« Last Edit: November 12, 2012, 11:25 by EmberMike »

« Reply #13 on: November 12, 2012, 11:26 »
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Since I don't hit the requirements, I don't give my info toPayPal .

I did read this today when I was doing research...

Quote
As a practical matter, under the new rule, companies must provide their tax identification numbers to each of their payment processors. If they dont, or if they provide the wrong number, they could be subject to backup withholding. The IRS has postponed this penalty, and backup withholding will only apply to payments made after December 31, 2012.

I don't know if that applies or not. Obviously, none of us are trying to withhold any money. We just don't want to deal with the extra forms.

« Reply #14 on: November 12, 2012, 12:47 »
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OK everybody, thanks for chiming in and as we can see there is a lot of confusion going on about this.

For the sake of trying to clear up some things I'd like to address a few responses:

Don`t use Paypal.
Although a short answer, I understand what you mean. I did have my account frozen a couple of times due to random verification procedures and not due to any suspicious account activity. The issues were resolved within 24 hours so I cannot really complain. I'm well aware that some people have had very bad experiences but we also know that we mostly only read the "victims'" versions of what happened to them. We never hear or read about Paypal's side of what happened. I don't want to protect Paypal here, I'm just speaking from experience e.g. like contributors showing up here complaining about their accounts being closed and admitting they copied other peoples work - DUH.

...But to answer the OP. The requirement for agencies is over $600 by law. They can report less if they wish, just that at $600.01 is the trigger and they must report. PayPal has a different limit and is all sources, so it's not the same thing. Does that help explain it? You could go over $20,000 and 200 transactions, with eBay and only one Micro payout, so it's not all about us, it's the whole system.

I report everything I make. However, and that was my question, how will the IRS understand which "payments" of the 1099-K from Paypal have already been reported by me and which came from other "sources" like ebay etc.?

Lisa simply recommends to avoid exceeding the PP limits of 200 transactions/$20,000 a year - that way there is no way of conflicting reporting to the IRS.

I don't care if PayPal wants to issue this form. They're not claiming to have paid me this money, just facilitating the transactions. The companies issuing the funds paid me. And I'm claiming all of that income, so there's no issue.

I plan to ignore this PayPal 1099. It's not telling me anything I don't already know, and it's not useful to my accountant or the IRS.

Honestly, I pretty much ignore most microstock 1099s. Every year, at least 1 or 2 of them report incorrect figures. I think they're all useless. I trust my numbers, I report accurate income, and I would have no problem backing up my returns if I'm ever audited.

I understand what you're saying and I would be jumping of joy if this is the reality. On the IRS web site I read that if you received a 1099-K form (sorry don't have the link handy) simply contact the IRS to provide the statements of already reported income that is also listed on the 1099-K from Paypal. That sounds like a half-ass audit to me and I don't like that one bit.  >:(

I've exceeded the 20K but not the amount of transactions so I will simply switch over to checks just to make PP shut up.

I was just wondering if anyone here who received a 1099-K had an accountant look it over and how they did their reporting in that case.

Thanks again for all your input. I'm happy to see all of you contributing to this issue.

« Reply #15 on: November 12, 2012, 13:10 »
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does PayPal send those papers only to people from US or do they send them to everyone, no matter where one lives. I have not yet received ANY papers from PP.

lisafx

« Reply #16 on: November 12, 2012, 13:29 »
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does PayPal send those papers only to people from US or do they send them to everyone, no matter where one lives. I have not yet received ANY papers from PP.

A 1099 is a US IRS document.  No reason for anyone outside the US to get one.  AFAIK there is no requirement from other countries that paypal report income to their revenue departments. 


« Reply #17 on: November 13, 2012, 01:48 »
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Thanks for the answer. I wouldn't be surprised if IRS taxed our money going through PayPal as well.
Whenever I think about the fact that all non-US microstockers pay taxes to the US government I somehow remember the old 'no taxation without representation' line. ;) Oh sweet irony!


 

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