Many of the shops I do involve shopper pay plus a reimbursement, such as for a meal. An example might be a $10 shopper pay plus up to $150 meal reimbursement. My question is, what does the MSC include on the 1099? Do they only add up and report all the “shopper pay” portions? Or does your 1099 include everything? I know about the $600 threshold.

If the answer is yes, then it’s on us to minimize taxes paid by operating as a small biz and report the expenses which would typically (for me) reduce that total of $160 down to just $10 of taxable income. Operating as a small biz, there’s definitely other deductions you can take such as mileage, etc but your small biz needs to show a taxable profit (every 2 or 3 out of five years or so), or else the IRS will say it’s a hobby, not a small biz (more on that below).

I keep good records but am eyeing the upcoming tax season. Basically, if I did five shops for an MSC where the shopper pay totaled $50 and the reimbursements totaled $700, will I get a 1099 from that company?

If you file as a hobby, you don’t pay the self-employment tax but you also can’t take deductions. In that case, if the MSC includes shopper pay AND reimbursements on the 1099, you would pay income tax on the whole $160 in the example above ($10 pay plus $150 reimbursement). So you’d basically owe perhaps about $30 (depends on your marginal rate of course) when you really only profited by $10. If this is the case, the value to the shopper is greatly reduced. Not only are you not really getting a free meal, you are being taxed on your 1099 amount which some of that is your own money that you already paid tax on.

If anyone can confirm and clarify this, I would appreciate it greatly!

Most MSCs do not include reimbursement on 1099 forms.

It depends on the MSC. Some don't but some are reading the directions wrong. They are interpreting the reimbursements as compensation. When a independent contractor or employee gives you an actual receipt for what you are reimbursing for it is not compensation. If MSC is giving you a flat fee for the reimbursement and you don't give them a receipt, then it is compensation because you keep the balance if any.

Ahh yes, for example a Weber Grill lunch shop paid a flat fee of $50. You still had to submit a receipt, I suppose just to prove that you bought something lol. But if you only spent $48, you still got the 50. As opposed to something like Kona Grill, which reimburses say 140. If you spent 152, they still only reimburse you 140.

So if you took a lot of Weber Grill type shops, you would hit that $600 threshold a lot faster than if you were taking shops where the vast majority of the “pay” falls under the compensation of reimbursement.

Let’s take Coyle, which a lot of folks here seem to be familiar with. A common one for them reimburses $150 and you can name your fee, so let’s say you are naming $10. So the $10 is the only thing they add into the 1099, right?

I love doing “free meal” shops and I am VERY good at studying the menu beforehand and figuring out how to stay under their reimbursement limit. I will even email the scheduler to clarify what qualifies as an entrée for example. So for me, I feel like I really am getting $150 free meals and I guess I don’t mind paying tax on 10 bucks if that’s all it comes down to.

reimbursement is NOT pay. They cannot include reimbursement for a mandatory purchase as payment. If you find out that a MSC is including reimbursement in your pay totals report them.

There are MSC's who pay a flat fee, and whatever is leftover after you make your purchase is your pay. That is NOT reimbursement. That is your payment. Goodwin used to do this, I don't know if they still do it under their new name or not. This is how Ardent used to pay their ICs too.

What about if you get paid more than $600 via PayPal. PayPal won’t distinguish between pay an reimbursements I believe?

Whats this filing as a hobby? Even if you get 1099s you can do this? Might be more worthwhile for me, especially as I won’t be getting much from social security when I retire (due to state pension/“Windfall” Elimination Provision). would have to see if I do better with that or with this as self-employment income/having deductions

@MS007 wrote:

Many of the shops I do involve shopper pay plus a reimbursement, such as for a meal. An example might be a $10 shopper pay plus up to $150 meal reimbursement. My question is, what does the MSC include on the 1099? Do they only add up and report all the “shopper pay” portions? Or does your 1099 include everything? I know about the $600 threshold.

If the answer is yes, then it’s on us to minimize taxes paid by operating as a small biz and report the expenses which would typically (for me) reduce that total of $160 down to just $10 of taxable income. Operating as a small biz, there’s definitely other deductions you can take such as mileage, etc but your small biz needs to show a taxable profit (every 2 or 3 out of five years or so), or else the IRS will say it’s a hobby, not a small biz (more on that below).

I keep good records but am eyeing the upcoming tax season. Basically, if I did five shops for an MSC where the shopper pay totaled $50 and the reimbursements totaled $700, will I get a 1099 from that company?

If you file as a hobby, you don’t pay the self-employment tax but you also can’t take deductions. In that case, if the MSC includes shopper pay AND reimbursements on the 1099, you would pay income tax on the whole $160 in the example above ($10 pay plus $150 reimbursement). So you’d basically owe perhaps about $30 (depends on your marginal rate of course) when you really only profited by $10. If this is the case, the value to the shopper is greatly reduced. Not only are you not really getting a free meal, you are being taxed on your 1099 amount which some of that is your own money that you already paid tax on.

If anyone can confirm and clarify this, I would appreciate it greatly!

Correct 1090-NEC's do not include reimbursements.

1099-K's will include reimbursements, but you will be able to make a line adjustment on 1040 to subtract out the amount that is not income. You will then be able to claim the remainder as hobby income if you choose. It will not be a business deduction, but rather an income adjustment.

If you are filing a Schedule C then you can subtract the amount of reimbursement out as an expense instead if you prefer.

Edited 2 time(s). Last edit at 10/30/2023 01:12AM by bradkcrew.

If you don’t show a profit often enough (I’ve never seen a hard and fast rule on this, but I’ve read something like every two out of five years or every three out of five years, then in the eyes of the IRS, this is not a small business is a hobby. The rules for reporting hobby income are a little different. I am not an expert, but I have spent a lot of time researching this, and I think one of the main differences is that with hobby income, you cannot deduct expenses. However, you also don’t have to pay the self-employment tax on hobby income. Just regular income tax.

The company that does the recalls incorrectly reports ALL money received, including the recalled product purchase, as compensation. I called them about this, and they wouldn't correct it. That's just the way they do it.

I also report everything I was paid, including reimbursements, whether I was 1099'd on it or not. I then deduct all my expenses, whether they were reimbursed or not. My tax guy is a CPA and that is how he does it.

mjt9598 mentioned the recall companies: They also include the mileage reimbursement in the 1099, but they reimburse mileage at less than the IRS rate. My accountant just adds all the income in and deducts all expenses, including the mileage at the full IRS allowed rate.

Edited 1 time(s). Last edit at 10/30/2023 11:14PM by MW.

@MS007 wrote:

If you don’t show a profit often enough (I’ve never seen a hard and fast rule on this, but I’ve read something like every two out of five years or every three out of five years, then in the eyes of the IRS, this is not a small business is a hobby. The rules for reporting hobby income are a little different. I am not an expert, but I have spent a lot of time researching this, and I think one of the main differences is that with hobby income, you cannot deduct expenses. However, you also don’t have to pay the self-employment tax on hobby income. Just regular income tax.

Again, it is not a deduction (expense), it is an adjustment that you will take if you are reporting as a hobby. You will adjust the amount reported on the 1099-K to reflect your actual earnings, since the amount received included reimbursements.

If you are reporting business income, you can just expense the reimbursements and there is no need to make an adjustment.

There is a concern that a lot of PayPal/Venmo, etc. 1099-K's may include personal transactions when they are issued if you do not have separate business accounts. In that case all of the personal transactions will be subtracted out as an adjustment on the 1040, even when you are filing a Sch C.

Since this will be the first year with the $600 threshold things are going to be messy.

Edited 1 time(s). Last edit at 10/31/2023 12:14AM by bradkcrew.

I use a CPA because I'm not a tax expert. I file a Schedule C. I don't know how my accountant would handle expenses should my work ever be classified as a hobby. (As an aside, if this s a hobby, I would stop immediately because this isn't my idea of fun.)

My understanding of the 3 out of 5 year is a "safe harbor" guideline. In other words, if you make a profit three out of five years, the IRS assumes it is a business. However, even if you don't make a profit 3 out of 5 years, it may not be a hobby, if you meet other criteria.

Just curious - can you give us an estimate of what you pay your CPA? Also, is your CPA only for your mystery shop business, or do you have other complex things they take care of?

I have always done my own taxes, but this is my first year as a mystery shopper, claiming mileage and other expenses, etc.

I'm just curious if it's worth paying a CPA or just using Turbo Tax like I have for my whole life.

I file a Schedule C. I rarely get a 1099 but getting a 1099 makes absolutely no difference in how I file. The key is to keep good records. As mentioned some msc will include reimbursements on their 1099's even tho that is not how they are supposed to do it. And paypal may throw in all sorts of non income related payments. Just keep your own records and fill out the Schedule C. honestly. I find it very worthwhile to be able to deduct mileage expense. I am not sure you can deduct anything when reporting on a hobby but my mileage, even tho i live in a big city and do not drive long distances for shops, still washes out a huge chunk of my fee earnings every year.
I know you will get all sorts of advice here on the forum from non experts. I am one of them but I believe in following the law and not trying to cheat wherever you can. I do keep an eye on my spreadsheet and if I see part way thru the year that I am not going to show a profit I make an effort to take enough fee shops so that I will for every year.
But you need to keep track of fees, flat fees and reimbursements as separate entities. The first job that MS007 mentioned is a flat fee job. There your fee would be whatever money is left over after you deducted the cost of the meal or what you had to buy for the shop. If you spent it all there would be a $0 fee. The second example is with a reimbursement limit so the fee amt is clearly set out for you. In both cases you need to assess the requirements of the job. If your flat fee job asks you to order a shake at Shakies and gives you a $10 flat fee and the shake with tax is $9 your leftover fee is $1. If you are throwing a party and get 10 shakes for $90 you should not be reporting a loss of $80 as the job only required one shake. It gets murkier when you over spend on a reimbursement due to ordering something more expensive than what you could have bought. There is disagreement on this forum over how to handle purchasing something more expensive than the cheaper item that would fit under the reimbursement. I like to think of that discussion as trying to push the limits of legality to where they do not think the IRS will bother to go after them. It s up to you.

My CPA charges $300, and I was paying close to $200 for TurboTax self-employed, so for me the CPA is worth it. This is for my personal taxes which do not have any other complicated issues. I started using the CPA to calculate correctly how much I can contribute to my individual 401(k) plans

@MysteryHulk wrote:

Just curious - can you give us an estimate of what you pay your CPA? Also, is your CPA only for your mystery shop business, or do you have other complex things they take care of?

I have always done my own taxes, but this is my first year as a mystery shopper, claiming mileage and other expenses, etc.

I'm just curious if it's worth paying a CPA or just using Turbo Tax like I have for my whole life.

Back on the old Volition forum there was a lot of discussion on taxes. Back when I shopped a lot, I was finding out that the mileage deduction would reduce my net income to nearly negative, so I would have to look for those high fee, low mileage jobs to make it possible to be profitable, They were mostly not fun and not things I would normally buy (like beverages and desserts with dinner jobs, or bonused fast food in bad neighborhoods). Now there are fewer bonuses and higher gas prices with reimbursements not keeping pace. So I only shop for two companies neither includes reimbursements and I am trying to stay under $600.

Even if you stay under $600, you still need to pay income tax. The fact that the MSC will not send you a 1099 does not make your income non-taxable.

@melg wrote:

Back on the old Volition forum there was a lot of discussion on taxes. Back when I shopped a lot, I was finding out that the mileage deduction would reduce my net income to nearly negative, so I would have to look for those high fee, low mileage jobs to make it possible to be profitable, They were mostly not fun and not things I would normally buy (like beverages and desserts with dinner jobs, or bonused fast food in bad neighborhoods). Now there are fewer bonuses and higher gas prices with reimbursements not keeping pace. So I only shop for two companies neither includes reimbursements and I am trying to stay under $600.

@MysteryHulk wrote:

Just curious - can you give us an estimate of what you pay your CPA? Also, is your CPA only for your mystery shop business, or do you have other complex things they take care of?

I have always done my own taxes, but this is my first year as a mystery shopper, claiming mileage and other expenses, etc.

I'm just curious if it's worth paying a CPA or just using Turbo Tax like I have for my whole life.

I don't have the bill handy but I'm thinking around $500. I live where there is State Income Tax also so that includes state and federal. I do have other income sources, but not much income from any source. The reason it is worth it to me, is that tax professionals keep up on the complex and ever changing laws. They can also advise you on the tax implications of something you are considering doing (e.g. converting a IRA to a Roth IRA, selling your home, buying an electric vehicle). But most importantly to me, they have experience dealing with the IRS. They know what things are likely to trigger an audit, and how the IRS tends to interpret things in "gray areas".

On my taxes I call every dollar received income. I then back out all expenses/reimpursements/mileage. It's clean and simple.

Edited 1 time(s). Last edit at 10/31/2023 11:14PM by teacherguy.

I just have a spread sheet that lists the date, company, place of shop, compensation and reiumbursement (if any). I also fill it in, as I go, as far as when I am paid by the shop (because if I do a shop in December but don't get paid until January, then it's not 2023 income), and the method (so I can reconcile paypals, dd, and the random check if needed). I then also have a spread sheet with the same first bit of info (date, company, place of shop), mileage and time to and from the shop (unless it's solely online/phone). I have all the formulas set up so I can tell at a glance how much I made, what's still outstanding, what part of total pay is reimbursement, what my mileage deduction will be, etc. I also have receipts for everything except for some parking jobs (because the tickets get taken by the machine), so, I keep the photos of the tickets and it's on my first spreadsheet as the reimubursement for that job. So my plan is to list the compensation as income, deduct the mileage expense as a business expense, and keep my receipts and spreadsheets in case its ever questioned, because I've read paypal just lumps it all in together and also that sometimes you'll get a 1099 from a company itself that pays through paypal which also sends a 1099, so then it's a double 1099.