Do I Have to Issue a 1099 to Independent Contractors I Paid via Third-Party Vendor Services Like PayPal, Venmo, or Wave?

Key Takeaways

• When you pay a contractor by credit card, PayPal, Venmo, or a similar platform, the payment processor, not your business, generally issues any Form 1099-K.

• For payments made after December 31, 2025, you must send a Form 1099-NEC only when direct payments by cash, check, or ACH to a contractor for services reach $2,000, up from $600.

• The One Big Beautiful Bill Act restored the federal 1099-K threshold to more than $20,000 and more than 200 transactions, retroactive to 2022.

• Paying a contractor through PayPal’s Friends and Family option can shift the 1099-NEC duty back to your business, because the platform will not report it.

• Maryland, Virginia, and D.C. require state-level 1099-K filings from platforms at far lower thresholds than the federal rule, so a DMV contractor may still receive a state form.

For small business owners who pay freelancers and subcontractors, the short answer is usually no. When you pay a contractor through a credit card, PayPal, Venmo, Wave, or a similar platform, you generally do not issue a Form 1099-NEC. The payment processor reports those amounts to the IRS on a Form 1099-K instead, and filing your own 1099 would double-report the same income.

The rules changed twice in 2025, so older guidance you may have read is now out of date. In this guide, our Maryland, D.C., and Virginia business tax attorney explains who reports what, the new dollar thresholds for 2026, and a common payment-app mistake that can put the filing duty back on you.

When Do You Have to Send a Contractor a 1099-NEC?

Form 1099-NEC reports nonemployee compensation (i.e., the payments your business makes to independent contractors, freelancers, and other nonemployees for their services). You generally must file a form for each contractor when two things are true:

• (1) You paid the person directly by cash, check, ACH, or wire in the course of your trade or business; AND

• (2) The yearly total reaches the reporting threshold.

That threshold recently went up. For payments made after December 31, 2025, the trigger is $2,000 or more in a calendar year, up from the long-standing $600 figure. Beginning in 2027, the $2,000 amount adjusts for inflation. You generally do not send a 1099-NEC to a corporation, and you never send one for personal payments.

Before you pay a new contractor, ask for a completed Form W-9. It gives you the name, address, and taxpayer ID number you need to report the payments correctly and to issue any required form by the January deadline.

“Pay a contractor through a card or app like PayPal or Venmo, and the platform, not your business, usually handles the IRS reporting on a Form 1099-K.”

Why Paying Through PayPal, Venmo, or a Card Usually Shifts Reporting to a 1099-K

The IRS does not want the same payment reported twice. So when money moves through a payment card or a third-party payment network, the company that settles the transaction takes on the reporting job. PayPal, Venmo, Stripe, Square, and similar platforms are third-party settlement organizations; a credit or debit card payment runs through a merchant acquiring entity. Either way, that settlement company, not you, reports the payment on a Form 1099-K.

Because of this, federal rules relieve you from filing a 1099-NEC for a payment that is reportable under the 1099-K system. That relief applies even if the platform never actually sends a 1099-K because the contractor stayed under its reporting threshold, as long as the payment is processed as a goods-and-services transaction. Personal-transfer features like Friends and Family are not, which is why they can put the 1099-NEC duty back on you.

The 1099-K Threshold Changed Again in 2025

For years, the IRS signaled that the 1099-K threshold would drop to $600. That never fully took effect. The One Big Beautiful Bill Act, signed in July 2025, repealed the planned $600 rule and restored the older standard, retroactive to 2022.

Today, a third-party payment network must issue a 1099-K only when payments to a payee for goods or services exceed $20,000 and more than 200 transactions in a year. Payment card transactions are different: there is no minimum, so a card processor can report even small amounts.

One caution has not changed: a 1099-K is only a reporting form. Whether or not you or your contractor receives one, the income is still taxable and still has to be reported on a return.

The Friends and Family Trap

Some businesses try to dodge platform fees by sending contractor payments through PayPal’s Friends and Family option or a similar personal-transfer feature. This can backfire. Payment apps treat those transfers as personal rather than goods-and-services payments, so they do not report them on a Form 1099-K.

When the platform does not report the payment, the federal relief described above does not apply, and the duty to file a 1099-NEC can land back on your business if the yearly total reaches the threshold. Labeling business payments as personal can also create problems in an audit. If you are paying for services, process the payment as a business transaction and keep clean records.

Maryland, Virginia, and D.C. Set Lower 1099-K Thresholds

Federal relief is not the whole story in the DMV. Maryland, Virginia, and Washington, D.C. each require third-party payment networks to file a state copy of the 1099-K for in-state payees at thresholds far below the federal $20,000-and-200 rule.

Virginia requires a third-party settlement organization that pays $600 or more to a payee with a Virginia mailing address to file a 1099-K with the state, even when no federal form is required (Tax Bulletin 20-10), with the payee copy due by February 28. Maryland likewise uses a $600 TPSO threshold for in-state payees. The District generally requires reporting at $600.

The practical takeaway: a contractor in the DMV may receive a state 1099-K even when no federal form is required.

Get 1099 Reporting Right Across Maryland, Virginia, and D.C.

Payment-app rules change often, and a small reporting mistake can trigger penalties or an audit. If you are unsure whether to issue a 1099-NEC or how the latest thresholds affect your business, our Maryland tax attorney can help. Schedule a consultation with Steve Thienel, who advises business owners on tax compliance throughout Maryland, Virginia, and the District of Columbia.