The following information is provided "as is" without warranty of any kind. You should always still consult a licensed tax advisor on tax-related matters for your jurisdiction.
If my small business paid independent contractors or other businesses using PayPal or a credit card, must we send them a 1099-MISC form for federal income tax purposes?
(Source 1: http://smallbiztrends.com/2015/01/1099-contractors-paypal-credit-card.html)
You are not required to send a 1099 form to independent contractors such as freelancers, affiliates, or to other unincorporated businesses such as LLCs, if you paid them via PayPal or credit card.
That is the case even if you paid the recipient more than $600 last year. (i.e. The normal threshold for when 1099-MISC forms are required is when you’ve paid the recipient a total of $600 or more)
Instead, in the case of electronic payments, the credit card companies and payment companies (PayPal in the case of ReferralCandy) will handle any required reporting.
Those electronic payment providers are required under certain circumstances to send out a different version of the 1099, called the 1099-K, instead.
(Source 2: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf)
Payments made with a credit card or payment card and certain other types of payments, including third party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC.