PAYPAL 1099 MISTAKEN use of payment method

Zola_de_Firmi · ‎February 02, 2025

Hi!

I have a business PayPal account. One of my husband's clients wanted to pay an invoice with PayPal while away from home. (I'm a partner in the contracting company)

So, I said yes and accepted the payment. Over 10k in 2 transfers. (The PayPal transaction was deposited into a personal checking account. )

Then I Deposited this into the Construction company as a contribution to the business checking, from me.
Then I posted the payment received for the invoice she was billed. It seemed clean.

When I got a 1099 for ME, now, this looks like my personal consulting company income. I am not sure what to do. I will not have much income otherwise to show for the semi inactive consulting biz.

In a sense the 1099 is just information, and I did the accounting in the contracting business books correctly, I think.

Q:: ANYONE have any idea if I must ask for a correction, or do something additional? The PayPal transaction was deposited into a personal checking account. (I normally summarize out of pocket (personal for biz) transactions, then I post as a journal entry into the correct business P&L books/ checking.

HELP will be VERY MUCH appreciated!

Zola_de_Firmi · ‎February 02, 2025

Thanks.
Only PayPal generated a 1099. NOT the client. (She will do nothing, losing vision and very much an elder now.)

You wrote:
"Please note that payments made to 1099 vendors via credit card, debit card, or third-party system like PayPal are excluded from the 1099 MISC and 1099 NEC calculations."
??

Do you mean excluded from calculations for 1099 generation for our company file? That doesn't pertain here. I am confused by that part of your reply.
Thanks.

Z

View solution in original post

FishingForAnswers · ‎February 02, 2025

@Zola_de_Firmi "There is no PayPal associated with our construction company."

This being the case, it may be worthwhile to consider establishing one for cases like this.

Depending on your husband's business type (Schedule C or otherwise), the effects of this 1099-K may wash out, but I wouldn't be too hopeful; you did mention that you were a partner, and getting Paypal to correct it, let alone in time to file before the due date, may be rather the task to undertake.

Hope it works out for you, though.

"Do you mean excluded from calculations for 1099 generation for our company file? That doesn't pertain here. I am confused by that part of your reply."

I'm not sure if the staff here have been swallowed up by Intuit's shift towards reliance on AI or not, but even if they're not, they likely rely heavily on keywords in posts.

This kind of reply from the staff here is usually to head off a common misconception among business owners; ever since 1099-Ks (a form used to report credit card, debit card, and some other forms of electronic payments) came into play, many businesses have made a mess of reporting the amounts they pay their contract laborers and other vendors that should receive either a 1099-NEC or a 1099-MISC.

In short, if a business owner paid a 1099-NEC vendor by the relevant electronic payment and included the amount on the 1099-NEC, the vendor in question would end up having the income double-reported to the IRS on both the 1099-NEC (which it shouldn't be on) and the 1099-K (which it should be on).

That would lead the IRS to expect the vendor to pay income taxes twice on the same income, being that it was reported twice.

So, it's become part of the standard reply you'll find on topics related to 1099s here.

View solution in original post

FishingForAnswers · ‎February 02, 2025

@Zola_de_Firmi "I have a business PayPal account."

"The PayPal transaction was deposited into a personal checking account."

I admit, I'm a little confused on why you have a Business Paypal hooked up to a personal bank account.

At any rate, what you received is probably specifically a 1099-K. Paypal, as all merchant service providers, will include the total of all the electronic payments they process for their Business Paypal accounts.

Unfortunately for you, they do not simply send this report to you as an information statement; it was reported to the IRS as income associated with whatever EIN or Social Security Number you have associated with your Business Paypal, and the IRS will expect to see it on your return, associated with the business in question.

If you do not include it, the IRS will adjust your return and include it for you above and beyond what was originally reported, increasing your income tax burden.

You may or may not be able to get Paypal to correct it, and at least on TaxSlayer, there is now a line on the Schedule C to adjust for erroneous amounts (usually Sales Tax) included on the 1099-K, probably due to all the issues companies have been having with reporting the correct totals on said 1099-Ks.

The problem with this is that Paypal did their job correctly; as far as I can see it, this was a misuse of a Business Paypal. You should not use a Business Paypal, or any given merchant service, for any payment that isn't due specifically to the business that is tied to the merchant service in question.

Anyway, while you may find a CPA here that is willing to chime in for free, you certainly won't get the kind of help you need from the support staff here; not through any fault of their own, in this case; this is simply a bit beyond what you could reasonably expect from software customer support.

I would suggest reaching out to a local CPA if you don't have any luck by day's end.

GianSeth_A · ‎February 02, 2025

Proper recording of your financial transactions is essential, particularly when they involve personal and business accounts. Addressing this will ensure your records are correct. I'll be providing the details you need, Zola.

Please note that payments made to 1099 vendors via credit card, debit card, or third-party system like PayPal are excluded from the 1099 MISC and 1099 NEC calculations.

Additionally, to ensure compliance with local regulations and get expert advice, it's advisable to consult with a tax agency. They can assist you with the specifics of tax laws and ensure that your handling of the 1099 form and any related adjustments to your tax filings are accurate and up to date.

Moreover, once found that it is required for a correction. Reach out to the client who issued the 1099 form. Explain that the payment was for the construction company and not for personal services provided by your consulting business. Request that they cancel the original 1099 form and, if necessary, reissue it correctly to the construction company as the recipient.

You'll find this resource helpful in ensuring your financial records are precise and up to date: Understand which payments are excluded from a 1099-NEC and 1099-MISC.

You might have more questions about the 1099 filing. Check out this article: Get answers to your 1099 questions.

We're here to ensure that every transaction upholds the clarity and precision your business deserves. For further questions or guidance, remember that the QuickBooks community is just a message away.

FishingForAnswers · ‎February 02, 2025

@GianSeth_A "Additionally, to ensure compliance with local regulations and get expert advice, it's advisable to consult with a tax agency in Maine."

I would be very surprised if "When I got a 1099 for ME, now, this looks like my personal consulting company income." was referring to Maine.

I've bolded the relevant parts.

Zola_de_Firmi · ‎February 02, 2025

Hi,
Thanks for replying!

To your questions:
In our rural area there are fewer options: our Credit Union did not offer business accounts when we moved here, rather they offered a SUB ACCOUNT to separate funds. Seemed to work. Now the construction company does have a business account.

My PayPal is used for few business expenses, and the same PayPal account was personal for many years; that that shifted to a business PayPal, and I am unsure why . Basically, I do not have an active business now, and it exists as a sleeping reality. I file a Schedule C for it. It has no profit.

There is no PayPal associated with our construction company. I simply did this for a long time client while she was traveling as a courtesy, all accounted for clearly as well as I knew how. Extra bookkeeping then, and apparently ongoing! Boo.

CPA s are not an option at this point. I do the best I can.
Thanks again.

Zola_de_Firmi · ‎February 02, 2025

Thanks.
Only PayPal generated a 1099. NOT the client. (She will do nothing, losing vision and very much an elder now.)

You wrote:
"Please note that payments made to 1099 vendors via credit card, debit card, or third-party system like PayPal are excluded from the 1099 MISC and 1099 NEC calculations."
??

Do you mean excluded from calculations for 1099 generation for our company file? That doesn't pertain here. I am confused by that part of your reply.
Thanks.

Z

Zola_de_Firmi · ‎February 02, 2025

That is correct, not Maine, just ME, me lol.

Thank you!

FishingForAnswers · ‎February 02, 2025

@Zola_de_Firmi "There is no PayPal associated with our construction company."

This being the case, it may be worthwhile to consider establishing one for cases like this.

Depending on your husband's business type (Schedule C or otherwise), the effects of this 1099-K may wash out, but I wouldn't be too hopeful; you did mention that you were a partner, and getting Paypal to correct it, let alone in time to file before the due date, may be rather the task to undertake.

Hope it works out for you, though.

"Do you mean excluded from calculations for 1099 generation for our company file? That doesn't pertain here. I am confused by that part of your reply."

I'm not sure if the staff here have been swallowed up by Intuit's shift towards reliance on AI or not, but even if they're not, they likely rely heavily on keywords in posts.

This kind of reply from the staff here is usually to head off a common misconception among business owners; ever since 1099-Ks (a form used to report credit card, debit card, and some other forms of electronic payments) came into play, many businesses have made a mess of reporting the amounts they pay their contract laborers and other vendors that should receive either a 1099-NEC or a 1099-MISC.

In short, if a business owner paid a 1099-NEC vendor by the relevant electronic payment and included the amount on the 1099-NEC, the vendor in question would end up having the income double-reported to the IRS on both the 1099-NEC (which it shouldn't be on) and the 1099-K (which it should be on).

That would lead the IRS to expect the vendor to pay income taxes twice on the same income, being that it was reported twice.

So, it's become part of the standard reply you'll find on topics related to 1099s here.

Zola_de_Firmi · ‎February 02, 2025

Thank you so much.

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PAYPAL 1099 MISTAKEN use of payment method