If I paid all my contractors via PayPal, do I need to issue any 1099s?
It depends! If you pay a person or business via PayPal’s Friends and Family option, you will need to a 1099-NEC to them. When you use this method to transfer funds, PayPal assumes it’s a non-business transaction and doesn’t include it in their 1099-K.
If you paid the contractor via PayPal business, you do not have to issue the contractor a 1099-NEC. PayPal is considered a third-party merchant and they are required to issue their own 1099 forms, called a 1099-K.
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How does this affect the 2021 tax year (for reporting from 2020 year)? I heard there is a new 1099-NEC form to be filed.
The same rules apply, it’s just a different form that needs to be filed for the 2020 tax year.