The general principle
Payments made by credit card, debit card or through a third-party payment network are generally reported by the card company or network on a different form, rather than by you on the contractor form. The idea is to avoid two reports of the same payment. Rules and thresholds have changed over time, so check the current guidance.
Payments by check, bank transfer or cash are different. These generally remain your responsibility to track and report if the other conditions are met.
Why your records still need the method
When you reconcile in January, you need to know, for each vendor payment, how it was made. A vendor paid partly by check and partly by card could have only part of the payments to report by you. If your records do not show the payment method, you cannot tell.
Add a payment method field or a tag in your accounting software. Record check, transfer, card or app on each bill payment.
Handling payment apps
Apps often connect to your bank or card. The statement line may say only the app name and a person. Add a memo with what the payment was for and keep the in-app receipt. If you pay through a personal account of an app, move business payments to a business account to keep records clean.
Do not use payment apps' personal or friends-and-family options for business payments, as these mix business and personal records and may have other consequences. Ask the app provider for the correct account type.
Reconciling the vendor list
Build your vendor payment table with columns for vendor, total paid, total by card or app, and total by other methods. The last column is your reporting amount to evaluate with your preparer. Keep this table with your year-end files.
If a vendor says they will receive a form from a processor, fine, but do not rely on it without checking the method of each payment.
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When to ask for help
Mixed payment methods, vendors who receive advances, and payments split across years are the situations that confuse the table. Show the table to your preparer in January rather than guessing. A short review is cheaper than a penalty notice.
A scenario with mixed payments
Imagine a designer paid forty percent by check and the rest by card over the year. Your records need the check total to evaluate for reporting, while the card amounts are typically reported by the processor. Without a payment method tag on each bill payment, you would have to dig through statements in January.
Setting the tag costs a few seconds per payment and saves hours at year end.
Worked example with numbers
You pay a contractor $900 by card in March and $700 by check in October. The card payment is generally reported by the card processor rather than on your 1099-NEC, so your check payments are what you track for your own filing. Keep a payee table showing the amount, the method and the date so you can explain the split. Check the current rules and thresholds with the IRS.
Mistakes that cost money
Assuming a payment app covers your reporting. Not noting the method in the books. Collecting no W-9 because the payment was small.
Check your work
In December, list each vendor, total paid by method, and whether you have a W-9.
Common questions
If I paid by card, do I still need a W-9?
It is still a good practice to collect one in case other payments to the same person are made another way.
Does this change how I record the expense?
No. The expense is recorded as normal. Only the information return responsibility changes.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.