1099’s for Tax Season 2023 (Due by Jan. 2024)
Welcome to another tax-based episode, after the last episode which was a bit different. I’m Paul Rosenblum.
As of the date of this recording, the official tax season starts on Jan. 2nd, 2024, and is less than 3 months away. And the deadline for me to get out hundreds of 1099 NEC’s is less than 4 months away (just around the corner)! As I have mentioned, it’s time to start preparing for that now.
In Jan. of 2022, the IRS announced that they were going to start tracking Zelle, Venmo and PayPal payments to better enforce already written tax code rules and laws. Right before Jan. of 2023, they announced that they weren’t ready to do that, so the 1099 situation stayed the same when I was producing them during Jan. of 2023.
After tax season 2023, the IRS announced that they will proceed with the plan for the 2023 tax season. So, it sounded relatively easy and straightforward. The IRS would track Zelle, Venmo and PayPal payments so that if an individual or a business receives $600 or more from the same vendor during the year, the IRS would send a 1099K to that business or individual so that bookkeepers for business entities would not have to. It would make my job somewhat easier, since I have a lot of people who I receive money from and people who I pay via Zelle, and Venmo. But actually, it’s not so straightforward at all, unfortunately.
And this is why I say that. First of all, there are two ‘versions’ of Zelle. Some banks have licenses for Zelle so that business accounts can receive Zelle payments and pay their vendors via Zelle directly from their business accounts. Some banks only have the licensing for Zelle for personal bank accounts. And by the way, a business account is a bank account for an LLC, partnership, or corporation. A sole proprietorship is considered a ‘dba’ (doing business as), so they are considered ‘personal’ bank accounts, although some banks are able to include it in the business login of your bank for better security, and a personal account would be another login username and ID, and then they can link the two together so that transfers can be done from a ‘business account’ to a ‘personal account’. This can happen at smaller community banks, but not the national ones. But as usual, I digress.
PayPal has ‘friends and family’ which has no merchant fee, and ‘PayPal for Business’ which does have a merchant fee and follows the $600 1099 rule just like credit card companies do.
VENMO has business and personal accounts as well.
The IRS has not yet specified (as of the recording date of this episode in October of 2023) if they are tracking Zelle payments getting deposited into a Zelle personal account or a business account or both. They have not specified about PayPal business or ‘friends and family’. So, as of October 2023, I still am unsure of who I need to provide 1099 NEC’s to in Jan. of 2024.
And what do you do, if you are paying a corporation to their PayPal account which is ‘friends and family’ under their personal name? If my client is ever audited, if the payment is going to a corporation, I have to show that name in QuickBooks even if it’s going to a personal PayPal account with a different name. If any of my clients get audited for some reason (which probably won’t happen, since I try to make clients’ books squeaky clean), the IRS auditor can trace those payments to corporations, and if they find out they are going to a personal PayPal account, they will assume that the payment never hit the corporate bank account, hence was not counted as income by the recipient and might lead to an audit for them.
I know what you are saying -- ‘Paul – it’s not your problem, that would be the problem of the company who your client is paying – not your clients’ problem!” and you’re absolutely correct.
However, being the teacher who I am, I feel an obligation to usually give unsolicited advice to people and get myself involved in situations that I probably shouldn’t be. I guess I’m wired to be an ‘accounting busy body’.
One of my larger clients in terms of 1099 NEC’s (over 120 1099’s per year), has many situations of paying corporations according to their W9 forms that I have and entered into the accounting systems, but we know we are paying their personal Zelle account or their personal PayPal account. Given the situation with the IRS this year, we decided that it would be a good idea to get all his 1099 subcontractors together in one webinar that I would conduct just for them, and explain that each and every one of the subcontractors should have a set of books for tax purposes, and they should declare all monies earned by their businesses even if the payments are going into a personal Zelle or a personal PayPal account, as well as Venmo. And I’m not even sure that all of these vendors even recognize that they are sole proprietorships and should file a schedule C by April of every year. So, this should be a ‘fun’ private webinar for all of this particular client’s vendors.
The second issue with 1099’s is reimbursements. Even though reimbursements and how to handle them are in the IRS tax code, it has never really been enforced. For example, if a client spent their own money to pay for something that their client needed, then my client would book it as an expense for their company. When the client prepared the customer invoice and had a line item for reimbursement of that item purchased for the client, the reimbursement would be booked as a negative expense, so that the expense just zero’d out and disappeared. So, if $100.00 was spent on behalf of a client, it would be a +$100.00 expense. When that expense is put onto a customer invoice, the software would book it as a -$100.00 to the same expense account used for the original purchase. So, that purchase would net out at $0.
However, now the IRS is enforcing that reimbursements are to be part of the 1099 that your company sends out to your eligible vendors. If there is $3,000.00 of reimbursements for that vendor, and you also paid that vendor $40,000.00 for their services, then the 1099 should be $43,000.00, not for the services @ $40,000.00. And your vendors should be booking all monies that you pay them – for services or reimbursements – as income in their books.
W2 payroll (by the way) is done in a similar way. The wages are taxable, but if an employee lays out their own money for something, and the company reimburses them through payroll, then that particular amount is non-taxable for the employee. It’s ‘income’ but not taxable. So, there is a rhyme and reason to this IRS enforcement of this rule.
January is the worst month of the year for me- because of the putting together of all of these hundreds of 1099’s and make sure they are the right numbers. And now, the IRS is keeping us guessing as to who we 1099 with a 1099 NEC, and who the IRS will send 1099K’s to.
Just another day in the bookkeeping/accounting world to make sure that our heads spin and we are kept in continual stress from October all the way through April 15th.
If you want your company 100% covered with all this 1099 stuff, even if you pay a corporation (who doesn’t need to get a 1099), send them one anyway. This way, if you are paying a corporation via Zelle to a personal Zelle account, your accounting and the W9 would still have the corporate name and tax ID filled out properly.
Have similar 1099 stories? Share them by emailing me @ bookkeepermensch@gmail.com or leaving me voicemail at www.bookkeepermensch.com.
Until next time, trying to keep my head straight on and getting enough sleep and even ‘banking’ sleep for Jan. 2024, and I’m anxious to hear from the IRS as to what I am doing in Jan. --- Until next time I’m (1099 stressed) Paul Rosenblum.