Tax season: the time of year when receipts pile up, spreadsheets multiply, and questions like “Wait, do I need to send this form?” keep you up at night. You're no stranger to the chaos if you’re a small business owner. And as a small business owner, you know that staying on top of IRS rules isn’t optional—it’s essential. Miss a step, and you could face penalties or even an audit. And let’s be honest, you’ve got better things to worry about than paperwork nightmares!
One question we hear a lot? “If I pay my contractor through Zelle, do I still need to send them a 1099-NEC?” Short answer: Yes, probably. Let’s break down why—and how to stay compliant without losing your mind.
What’s a 1099-NEC? (And why should I care?)
Think of the 1099-NEC as your way of telling the IRS, “Hey, I paid this contractor $X this year—just keeping you in the loop!” It’s a simple form with a big job: tracking payments to freelancers, consultants, and other non-employees.
Why do I need to file this?
The 1099-NEC is the IRS’s way of ensuring contractors report their income accurately. It’s not just about compliance—it’s about protecting your business from penalties and audits.
What's the filing threshold?
If you pay a contractor $600 or more in a year, you’re required to send them a 1099-NEC. This applies to all types of non-employee compensation, whether it’s a one-time project or ongoing work.
What's on the form?
The form reports total payments for services—things like design work, consulting fees, or legal advice. It doesn’t include reimbursements for expenses (e.g., travel or supplies).
Who gets one?
- Independent contractors
- Freelancers
- Consultants
- Attorneys
Basically, anyone who isn’t on your payroll but helps your business run.
When is the filing deadline?
January 31: This is your annual deadline to file the 1099-NEC with the IRS and send a copy to the contractor. Mark it on your calendar—it’s non-negotiable!
What do the recipients do with it?
Contractors use the 1099-NEC to report their income on their personal tax return, usually on Schedule C. Without it, they could face IRS scrutiny—and you don’t want that on your conscience.
What’s a 1099-K? (And how is it different?)
The 1099-K is like a digital paper trail for payments made through apps like PayPal, Venmo, or Square. But here’s the key difference: You don’t send this form—the app does. It’s their way of telling the IRS, “Hey, this person got paid for goods or services through us!”
What’s on a 1099-K?
- It shows payments for goods or services made through credit cards, debit cards, or apps.
- Personal payments (like splitting dinner with friends or sending your cousin money for concert tickets) don’t count.
Who sends and receives it?
- Payment apps (e.g., PayPal, Venmo) send the 1099-K to the IRS and the contractor.
- You don’t have to do anything—unless you’re the one getting paid through these apps.
What's the reporting threshold for 2024?
- Contractors will get a 1099-K only if they earn $5,000+ from goods or services on an app.
Why this matters for you
If your contractor gets a 1099-K from PayPal for the work you paid them, you don’t need to send a 1099-NEC for those payments.
But if you paid them partly through Zelle (or check/cash), you’ll still need a 1099-NEC for the non-PayPal portion.
Another thing to note is that if you paid a contractor more than $600 but less than $5000 through PayPal or Venmo, then the apps won’t send them a 1099-K because they didn’t hit the $5000 threshold.
But since you paid them over $600, you still need to send them a 1099-NEC. The IRS requires you to report these payments, no matter how you made them—whether it’s PayPal, Zelle, or cash. So, even if the app doesn’t handle the paperwork, you’re still on the hook.
Zelle Payments: The Big Question
Zelle is fast, easy, and feels almost like texting cash. But here’s the catch: Zelle doesn’t send 1099-Ks. According to Zelle’s FAQ, they only report payments in cases of fraud or subpoenas.
What this means for you
If you paid a contractor $600+ via Zelle, you must send them a 1099-NEC. It doesn’t matter if you paid them in one lump sum or multiple smaller payments—all of it counts toward that $600 threshold.
Example:
You hire a freelance writer and pay them $400 in March, $300 in June, and $500 in October—all via Zelle. Total: $1,200. You need to send a 1099-NEC, even though no single payment hit $600.
I forgot to send a 1099-NEC. Now what?
Life happens. Maybe you lost track of payments, or the deadline slipped your mind.
Here’s how to fix it:
- File ASAP:
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- Use the IRS FIRE system to e-file the 1099-NEC. It’s faster than mailing.
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- If you’re old-school, mail the form with a 1096 summary (the IRS’s cover sheet).
- Send a copy to your contractor:
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- Apologize for the delay and explain it’s coming late.
How much do I need to pay in penalties?
The IRS charges $60–$310 per late form, depending on how late you are.
- If you’re 30 days late: $60/form.
- If you’re over 30 days late: $120/form.
- If you ignore it entirely: $310/form.
However, it’s important to note that they rarely actually assess this penalty. In fact, in the history of our firm we’ve never seen a client get a penalty for filing a Form 1099 late. Needless to say, chat with a tax professional to understand how this all works!
The bottom line
Paying contractors through Zelle doesn’t let you off the hook with the IRS. Unless a payment app like PayPal sends them a 1099-K (which only happens if they earn $5,000 through the app), you’re responsible for sending a 1099-NEC for payments over $600.
Here’s how to keep it simple:
- Track every payment: Whether it’s $50 or $5,000, log it. Those small amounts add up fast.
- Use tools to automate: Apps like Xero or QuickBooks can track payments and generate 1099s for you.
- Ask for a W-9 upfront: Before paying a contractor, get their tax ID. It’ll save you headaches later.
- When in doubt, ask a pro: Tax rules can be tricky, and there’s no shame in getting help.
At DiMercurio Advisors, we’ve helped countless small business owners turn tax chaos into confidence. Whether you’re drowning in receipts or need a second opinion, reach out today. Let’s tackle tax season together—one form at a time.
