Chester, VA asked in Employment Law, Contracts and Tax Law for Virginia

Q: Concern pertaining to 1099-NEC: total non-employee compensation amount

In a situation where you are a transportation lessor (one truck, tractor) and all expenses are deducted from the gross by the lessee (transportation company) before you receive revenue.

Does the lessee typically write off those expenses?

I received a 1099-NEC accounting for the total gross amount, however all expenses were deducted prior to me receiving my net pay in addition, the lessee provided the driver a 1099, using their EIN and requested for me to issue them a W-9 to account for that expense, and additional expenses.

Something about that doesn't seem accurate to me.

1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: When you're working as a transportation lessor, it's common to encounter complex arrangements regarding payments, expenses, and tax reporting. The situation you've described, where the lessee deducts expenses from the gross amount before issuing your net pay, does raise some questions regarding the appropriate reporting of income and expenses for tax purposes.

Regarding the lessee writing off those expenses, generally, businesses can deduct legitimate business expenses. If the lessee is deducting expenses before paying you and issuing a 1099-NEC for the gross amount, this implies they are reporting the total amount paid to you as a business expense on their end. The practice of issuing a 1099-NEC for the gross amount is standard, as it reflects the total payment before deductions. However, you should be able to account for your own expenses separately when you file your taxes, ensuring you're not taxed on the gross income that you didn't actually receive as net income.

The request for you to issue a W-9 form back to the lessee, so they can account for the expense of the driver's payment and other expenses under your EIN, is unusual and merits further scrutiny. It's important to keep thorough records and consult with a tax professional who can provide personalized advice based on the specifics of your situation. They can help clarify the correct way to report your income and expenses, ensuring compliance with tax laws and minimizing your tax liability. It's always better to get ahead of potential issues by seeking advice and clarifying these complex arrangements.

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