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Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Experience:  3+ decades of varied tax industry exp. Tax Biz owner
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We have an LLC located in NY. Clients pay us through PayPal.

Customer Question

We have an LLC located in NY.
Clients pay us through PayPal. PayPal reports all this to IRS.
A client is requesting a W9.
Do we need to give this? It's PayPal already reporting it?
Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  Tax.appeal.168 replied 1 year ago.

Yes, in order for the client to deduct the amounts paid to your LLC, even if it is through Paypal, they need your E.I.N. so that they can issue you a 1099-Misc. Paypal reporting to the IRS is for information matching purposes only. Example, a business earns $30,000 through Paypal, but they only report $20,000, the IRS will see that an additional $10,000 was paid to Paypal.

Let me know if you require further assistance with this matter.

Customer: replied 1 year ago.
This contradicts what happened to us on 2013 tax.
We issued w9s to clients that requested and the amounts were also reported to IRS by PayPal and then again by the clients.
The clients then had to zero out new w9s. As there were many double
Payments by about 7 clients that wanted the w9s
It was a nightmare.
So now in confused with this information?
Expert:  Tax.appeal.168 replied 1 year ago.

The following applies when a 1099-K has to be issued:

Beginning in January, 2012, payment settlement entities (PSEs) are required by the Housing Assistance Tax Act of 2008 to report on Form 1099-K the following transactions:

  • All payments made in settlement of payment card transactions (e.g., credit card);
  • Payments in settlement of third party network transactions IF:
    -Gross payments to a participating payee exceed $20,000; AND
    -There are more than 200 transactions with the participating payee.

REFERENCE SOURCE:

https://www.irs.gov/Businesses/New-1099-K-Reporting-Requirements-for-Payment-Settlement-Entities

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If the gross payments made to your company exceed $20,000 and there are more than 200 transactions, the 1099-K issued by Paypal is all that is required. However, if payments made to your company is less than the /$20,000 and there were less than 200 transactions, the payer will issue a 1099-Misc.

Let me know if you require additional info.

Customer: replied 1 year ago.
Thank you.
There are more than 200 transactions and more than 20k
This client keeps saying they need a w9 in case they are audited. They won't give up.
What do I tell them? Just what you wrote above?
Does this change if the client doesn't pay via PayPal but pays via check or direct deposit?
Expert:  Tax.appeal.168 replied 1 year ago.

You are welcome. Does the client was the W9 to issue a 1099-misc or simply for their records? If it is only for their records, then it is ok to provide the W9 to them. However, let them know that no 1099-Misc should be issued by them since Paypal will be issuing a 1099-K. The client should already be aware of this, but you might have to reiterate it to them. If the client pays with cash, or via direct deposit, the reporting requirement changes. They will need to issue a 1099-misc.

You can reference the link that I provided regarding the 1099-K.