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How you paid a contractor can decide who files the tax form. Pay by card or through a payment app and the payment company generally reports it. Pay by check, bank transfer or Zelle and it's generally on you. This post explains the rule, the 1099-K thresholds, and why Zelle is treated differently from PayPal and Venmo.
Why does the payment method matter?
The Instructions for Forms 1099-MISC and 1099-NEC say payments made with a credit card or payment card, and certain other payments including third-party network transactions, must be reported on Form 1099-K by the payment settlement entity under IRC §6050W. They are not subject to reporting on Form 1099-MISC or 1099-NEC.
That avoids double reporting. The contractor's income is reported once, by the company that settled the payment.
Who files Form 1099-K, and when?
There are two kinds of payment settlement entity:
| Who | Examples of what they process | Reports on 1099-K when |
|---|---|---|
| Merchant acquiring entities (card processors) | Credit and debit card payments | Any amount |
| Third-party settlement organizations (TPSOs) | Payment apps and online marketplaces that settle payments between buyers and sellers | The payee received more than $20,000 in gross payments and more than 200 transactions in the year |
Sources: IRC §6050W(e) as amended by OBBBA section 70432; IRS, Understanding your Form 1099-K; Pub. 1099 (2026).
Two notes on the TPSO threshold:
- Both tests must be exceeded. $25,000 over 150 transactions doesn't trigger a TPSO 1099-K; neither does $15,000 over 300.
- The $600 figure never took effect. OBBBA restored the $20,000/200 test retroactively, "as if included in" the 2021 law that had lowered it. Articles warning about a $600 1099-K threshold are out of date.
A payee who stays under the TPSO threshold may not receive a 1099-K at all. That doesn't make the income tax-free for them, and it doesn't shift the reporting to you: under the 1099 instructions, card and third-party network payments still aren't reported on your 1099-NEC.
Does PayPal or Venmo count as a card or payment-app payment?
It depends on how you paid.
- Business payments or "goods and services" payments through PayPal, Venmo or a similar app are third-party network transactions. The app reports them to the contractor on Form 1099-K if the thresholds are met. You generally don't file a 1099-NEC for them.
- Paying by credit or debit card through any platform is a card payment, reported by the processor regardless of amount.
- Personal "friends and family" transfers are meant for personal payments. The IRS says money received from friends and family as a gift or repayment of a personal expense shouldn't be reported on Form 1099-K. If you used a personal transfer to pay a contractor for business services, don't assume a 1099-K will cover it. Talk to your tax adviser about how to report it, and use business payments or a bank method going forward.
Our 1099 checker asks how you paid, and returns "reported on 1099-K by the payment company" for card and payment-app business payments.
Why is Zelle treated differently?
Zelle is used to send money directly between bank accounts. It isn't a card payment.
What we could confirm from IRS sources:
- The Instructions for Form 1099-K state that automated clearing houses do not qualify as TPSOs and don't report under section 6050W.
- The IRS pages we checked, including Understanding your Form 1099-K, the Form 1099-K FAQs and the 1099-K instructions, don't name Zelle specifically.
So we treat Zelle cautiously, the same as ACH and wire transfers: if you paid a contractor through Zelle and the total reaches the threshold, plan to file Form 1099-NEC yourself. That's the conservative position, and it's how our checker handles Zelle. If Zelle is a big part of how you pay contractors, confirm the treatment with your tax adviser.
Which payments are mine to report?
| How you paid | Who reports it | Form |
|---|---|---|
| Check | You | 1099-NEC or 1099-MISC, at the threshold |
| Cash | You | 1099-NEC or 1099-MISC, at the threshold |
| ACH / direct deposit from your bank | You | 1099-NEC or 1099-MISC, at the threshold |
| Wire transfer | You | 1099-NEC or 1099-MISC, at the threshold |
| Zelle (bank-to-bank) | You (see caution above) | 1099-NEC or 1099-MISC, at the threshold |
| Credit or debit card | The card processor | 1099-K, any amount |
| PayPal, Venmo or similar business / goods-and-services payment | The payment app | 1099-K, over $20,000 and over 200 transactions |
For 2026 payments, the 1099-NEC threshold is $2,000 (it was $600 for 2025). The 1099-NEC is due to the contractor and the IRS by February 1, 2027.
What if I paid the same contractor several ways?
Only count the payments that are yours to report. For example, you paid a designer $1,500 by check and $3,000 by card in 2026. Only the $1,500 by check counts toward your 1099-NEC threshold, and it's under $2,000, so no federal 1099-NEC is needed. The $3,000 card payment is the processor's to report.
This is where a payment log helps. Our free Contractor Payment Tracker + 1099 Readiness Sheet records the method for each payment and totals only the bank, check, ACH and Zelle payments toward the threshold.
What should I do now?
- Tag each contractor payment in your books by method (bank/check/ACH/Zelle vs card/app).
- Collect a W-9 from everyone you pay by bank method. You'll need the TIN if they cross $2,000.
- Run borderline payees through our 1099 checker.
- Check your state. Some states use lower thresholds than $2,000. See the 1099 filing guide.
Want it handled? RAHA's per-form 1099 filing service covers W-9 collection, e-filing of 1099-NEC and 1099-MISC, recipient copies and state filings where required, with the price quoted upfront. Clean, categorised books make the whole process simpler; see our bookkeeping services. Also useful: 1099-NEC vs 1099-MISC and Do I Send a 1099 to an LLC?
Frequently asked questions
Do I send a 1099 if I paid a contractor through PayPal?
Generally no, if it was a business or goods-and-services payment, or paid by card. The payment company reports it on Form 1099-K.
Do I need to send a 1099 for Zelle payments?
We recommend treating Zelle like a bank transfer: if the total you paid a contractor reaches $2,000 in 2026, file Form 1099-NEC. IRS instructions say automated clearing houses aren't TPSOs, but the IRS pages we checked don't mention Zelle by name.
What is the 1099-K threshold for 2026?
For payment apps and online platforms, more than $20,000 and more than 200 transactions. For card payments, there's no minimum.
Did the 1099-K threshold drop to $600?
No. That change never took effect. OBBBA restored the $20,000 and 200-transaction test retroactively.
I paid by card, but the contractor says they didn't get a 1099-K. Should I file a 1099-NEC?
Card payments are reported by the processor, not on your 1099-NEC, per the IRS instructions. The contractor still reports the income on their own return.
Does this apply to rent or other 1099-MISC payments?
Yes. Card and third-party network payments are excluded from 1099-MISC as well as 1099-NEC.
Sources
- IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): https://www.irs.gov/pub/irs-pdf/i1099mec.pdf
- IRS, Instructions for Form 1099-K: https://www.irs.gov/instructions/i1099k
- IRS, Understanding your Form 1099-K: https://www.irs.gov/businesses/understanding-your-form-1099-k
- IRS, Form 1099-K FAQs: General information: https://www.irs.gov/newsroom/form-1099-k-faqs-general-information
- IRC §6050W: https://www.law.cornell.edu/uscode/text/26/6050W
- IRS, Publication 1099 (2026): https://www.irs.gov/pub/irs-pdf/p1099.pdf
This guide provides general information for educational purposes and is not tax, legal or accounting advice. Consult a qualified professional before acting.