Tax Reporting and 1099 Forms

Overview

If you're running a referral or affiliate program through GrowSurf and paying participants for their referrals, you may have tax reporting obligations. This guide explains the basics of 1099 forms and how they relate to your referral or affiliate program.

Understanding 1099 Forms

There are a few common 1099 forms relevant to referral and affiliate programs:

Form 1099-NEC (Nonemployee Compensation)

What it is: Used to report payments to independent contractors or non-employees for services rendered.

When you need to issue it:

• You pay a U.S.-based individual or business more than the federal reporting threshold in a calendar year: generally $2,000 for 2026 and later payments, or $600 for 2025 and earlier payments.
• Payments are made via ACH transfer, wire transfer, check, or direct deposit
• The recipient is not a C-corporation or S-corporation (unless backup withholding applies)

Your responsibilities:

• Collect a completed Form W-9 from each participant before making payments
• Track total payments made to each participant throughout the year
• Issue Form 1099-NEC by January 31st of the following year
• File copies with the IRS and provide one to the recipient
• Some states may have additional filing requirements

Penalties for non-compliance: Late or incorrect 1099-NEC forms can result in IRS penalties that vary based on the filing year and how late the form is filed.

Form 1099-K (Payment Card and Third Party Network Transactions)

What it is: Issued by payment processors (like PayPal, Stripe, Venmo) to report payments received through their platforms.

Current federal 1099-K threshold: Under current federal rules, a participant generally receives a Form 1099-K if they exceed both of these thresholds:

• More than $20,000 in total payments for goods or services, AND
• More than 200 separate transactions

Important notes:

• Some states have lower thresholds. For example, PayPal lists Vermont, Massachusetts, Virginia, and Maryland as having a $600 gross payment threshold for state 1099-K reporting.
• Personal transactions (gifts, reimbursements from friends) are excluded
• If a participant meets the threshold, the payment processor issues the 1099-K directly to the participant.

Form 1099-MISC (Miscellaneous Information)

What it is: Form 1099-MISC may apply to certain prizes, awards, or other income that are not payments for services.

PayPal Integration Users

If you're using GrowSurf's PayPal integration to send cash rewards to participants, PayPal will handle the 1099-K reporting when their thresholds are met. This means:

• PayPal will issue a 1099-K to participants who exceed the reporting threshold
• You generally do not need to issue Form 1099-NEC for payments made through PayPal, but you should keep your own records and confirm your obligations with a tax advisor.

However, you should still:

• Maintain accurate records of all payments made through the platform
• Ensure participants understand they're responsible for reporting their earnings
• Consider adding tax information to your program's terms and conditions

Best Practices for Compliance

1. Collect Tax Information Upfront

Add a W-9 collection step to your participant onboarding process. Consider collecting this information before making manual/non-PayPal payments.

2. Track Payments Throughout the Year

Monitor cumulative payments to each participant quarterly. This helps you identify who will need a 1099 before year-end.

3. Maintain Clear Records

Keep detailed records of:

• Payment amounts and dates
• Payment methods used
• Completed W-9 forms
• Business vs. personal transaction classifications

4. Communicate Tax Responsibilities

Make it clear in your program terms that participants are responsible for:

• Reporting all income to the IRS (even if they don't receive a 1099)
• Paying applicable income and self-employment taxes
• Consulting with a tax professional about their specific situation

5. Plan Ahead for Tax Season

• Mark your calendar for the January 31st 1099-NEC deadline
• Consider using tax preparation software or working with an accountant
• File electronically when possible to reduce errors

For International Participants

If you have participants outside the United States:

• U.S. tax forms (1099-NEC, 1099-K) generally don't apply
• You may need to collect Form W-8BEN or Form W-8BEN-E instead
• Different reporting requirements may apply (such as Form 1042-S)
• Consult with an international tax professional for guidance

Frequently Asked Questions

Q: Do participants need to receive a 1099 to report their income?

No. All taxable income must be reported to the IRS, regardless of whether a 1099 form is received.

Q: What if a participant refuses to provide a W-9?

You may be required to withhold backup taxes (typically 24%) and should consult with a tax professional about your obligations.

Q: Can I avoid 1099 requirements by paying participants in gift cards?

No. Gift cards and other non-cash compensation are generally considered taxable income and must be reported.

Q: Do I need to issue 1099s for small amounts like $10 or $50?

For manual/non-PayPal payments, reporting may apply if total annual payments exceed the federal threshold: generally $2,000 for 2026 and later payments, or $600 for 2025 and earlier payments. For PayPal/payment-processor payments, the processor’s 1099-K threshold applies.

Additional Resources

• IRS Form 1099-NEC Instructions: IRS.gov
• IRS Form 1099-K Information: IRS.gov/1099khelp
• Small Business Self-Employed: IRS.gov/businesses/small-businesses-self-employed

Remember: Tax laws are complex and subject to change. This guide is for informational purposes only and should not be considered tax advice. Always consult with a qualified tax professional for guidance specific to your situation.