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.
Contents |
| What’s a 1099-NEC? (And why should I care?) |
| What’s a 1099-K? (And how is it different?) |
| Zelle Payments: The Big Question |
| I forgot to send a 1099-NEC. Now what? |
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.
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.
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.
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).
Basically, anyone who isn’t on your payroll but helps your business run.
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!
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.
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!”
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 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.
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.
Life happens. Maybe you lost track of payments, or the deadline slipped your mind.
Here’s how to fix it:
The IRS charges $60–$310 per late form, depending on how late you are.
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!
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:
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.