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 two main types of 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 $600 in a calendar year
• 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 ranging from $60 to $310 per form, depending on how late they're 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 thresholds (2025 and beyond): For payments received through payment processors in 2025, you will receive a Form 1099-K if you 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 (e.g., Vermont, Massachusetts, Virginia, and Maryland use a $600 threshold)
• Personal transactions (gifts, reimbursements from friends) are excluded
• If you meet the threshold, the payment processor issues the 1099-K directly to you—not your participants

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:

• You do NOT need to issue a 1099-NEC for payments made through PayPal
• PayPal will issue a 1099-K to participants who exceed the reporting threshold
• You are not responsible for the tax reporting when using payment processors

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. Don't make any payments until you have this information on file.

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

5. 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

6. 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?

Only if the total annual payments to that individual exceed $600 (for 1099-NEC) or the processor's threshold (for 1099-K).

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.