Tax season will soon be upon us – and it’s never too early to start preparing.
During this time of year, we get a lot of questions from our resellers who want to make sure they aren’t missing important steps in the tax preparation process.
You might already be spending a lot of time collecting W-9s and filing 1099-MISCs for the other vendors you work with.
The good news? You don’t need to go through that process for any of the work you outsource to us.
We know this information can be tricky to understand. There’s always a lot of confusion surrounding the tax forms you may or may not need to file, particularly as a business owner.
It’s worth noting that we are not tax professionals. Although we’ve consulted with several CPAs on this subject and verified this information several times over, you should still confirm with your tax preparer.
With that being said, we’re breaking down this subject for you with the latest information available to ensure you feel prepared as we head into tax season.
Why Don’t I Need to File a 1099-MISC for Semify?
The first thing you need to know is that our resellers do not need to file a 1099-MISC for any payments you make to us here at Semify.
According to Investopedia, 1099-MISCs were often used to – among other things – report business-related compensation for non-employees (including for contractors, freelancers, and sole proprietors) prior to the 2020 tax year. Note that these kinds of payments now require a 1099-NEC form instead.
However, even prior to 2020, our resellers did not need to file a 1099-MISC for any payments they made to Semify. That’s because all of our clients pay us by credit card.
In the IRS’s instructions for the 1099-MISC and 1099-NEC forms, it specifically states:
“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.”
That’s an important distinction because credit card companies (along with payment processing platforms like PayPal) are required to send the IRS a 1099-K form instead.
In other words, you do not need to file any payments you’ve made to us using a 1099-MISC form. We’ll explain what you need to know about the 1099-K form next.
What is a 1099-K and Do I Need One?
With this information in mind, you might be wondering if you now need to worry about filing a 1099-K form instead. But we have good news there, too. This isn’t something you, as a small business owner, need to handle.
1099-Ks are another type of income reporting form that the IRS requires. However, the payment processing services you use – which include credit card companies and platforms like PayPal – are the ones that need to report certain types of transactions using these forms.
The 1099-K form is meant to report any income earned via these third-party payment processing platforms. The platforms themselves are required to issue a 1099-K to the IRS in order to report sales involving their customers (who may be business owners like you).
The catch here is that 1099-Ks are currently issued only if a customer has received more than $20,000 in a given year and they have also performed more than 200 transactions on the platform. Unless that one credit card company or payment processor has logged 200+ transactions and over $20,000 in income for your business, you will not be issued a 1099-K in 2022 for your 2021 taxes. NOTE: This will change next year, but you still won't be responsible for filing this form yourself!
To sum up: small businesses don’t submit 1099-Ks. It’s only payment processors that need to do that – and only under specific circumstances. The onus is merely being put on the payment processing companies, rather than the business owners themselves, to make sure transactions are actually being reported to the IRS.
All told, our resellers actually don’t need to panic during tax season – at least, not where Semify is concerned. You don’t need to file a 1099-MISC or a 1099-K for us at all. And if you do end up needing a 1099-K this year or next year for your taxes, your payment processing platform will take care of that for you.