Reporting Taxes - Information for US Affiliates and Merchants

Reporting Taxes For Your Affiliate Commissions (For US only)

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There is often confusion about who has to report what and when and how when it comes to Taxes.
This is a little guide for affected Affiliates and Advertisers (Merchants) to provide a better understanding of this issue. This is not meant to be a legal advice. Use the advice on your own risk. Please also consult your legal and financial advisors.

Who has to Pay Taxes?
Who has to Report the Commission/Income?
How do I Report Commissions?
What must be Reported to the IRS and the Affiliate?
When must be Reported to the IRS and the Affiliate?
What is a 1099-Misc Form and Where Can I Get It?
What is a W-9 Form and what is its Purpose?
What about US Citizen and Affiliate living outside the United States?

The Basics

If you are an U.S. advertiser and paid $600 or more in commission to an affiliate who resides in the U.S. or an affiliate who is an American citizen, who are living abroad; and who is not any type of corporation (provided their EIN versus a SSN with Form W-9); within any given calendar year, you must inform the IRS about this (via the 1099-MISC Form).
The 1099-MISC Form must be sent to the affiliate before February 1 for commissions earned the previous year.
In order to be able to send the right information about the affiliate and the earned commission to the IRS, you should get a completed and signed W-9 Tax Form from your affiliate partner. You don't have to get the information via a W-9 Form. It is sufficient to ask for the information via a web form. Make sure that the form is SSL secured because the information is very sensitive. Make sure that your web form contains all information found on the W-9 Form. See the link to the W-9 Form at IRS.gov below.
You can send a 1099-MISC to the IRS, even if the affiliate did not reach $600 in commission, but in any case, if you send a 1099-MISC to the IRS, also send a copy to the affiliate.
Below is the link to the 1099-MISC Form at IRS.gov, which includes the part to be sent to the IRS, the copy you need to keep for your records and the copy to be sent to the affiliate.
Advertisers who have to file 250 or more Form W-1099 reports must file all of them electronically or magnetically with the IRS. If it is less than 250 forms and if they are transmitted in paper format, Form W-1096 needs to be filed as well, which is basically a summary of all the W1099's filed.

There are various online services out there that will help you with filing your corporate or personal taxes.
You can find a selection of the top services at my Taxes, Accounting and Legal Advice Resources Section.

Tax Forms available at IRS.gov

Form 1099-MISC at IRS.gov
Form 1099 General Instructions at IRS.gov
1099-MISC - FAQ - Frequently Asked Tax Questions And Answers at IRS.gov
Form W-9 (PDF), Request for Taxpayer Identification Number and Certification at IRS.gov
Form W-1096 (PDF), Annual Summary and Transmittal of U.S. Information Returns at IRS.gov

Tips and Notes for Affiliates and Affiliate Managers

Note for Affiliates: You are required to report any earned commission to the IRS with your Income Tax Statement. You had better not "forget" that, especially if you received a 1099-MISC from a network or merchant.

Wait at least until mid February before you file your income tax for the previous year. I would even wait until the beginning of March. Verify the information on the 1099-MISC Form (SSN, name, address and commission amounts).

Note for Affiliate Managers: Check out my post at ReveNews.com titled "Death, Taxes and Affiliate Marketing" for tips and suggestions to when to ask affiliates for the W9 form.

Basic Glossary

IRS: Internal Revenue Service, the U.S. tax collection agency ("Finanzamt" in Germany)
TIN: Taxpayer Identification Number (SSN or EIN)
SSN: Social Security Number for individuals and sole proprietors
EIN: Employer Identification Number for corporations
FORM W-9: Offical form provided by the IRS to request Tax relevant information from a contractor
FORM 1099-MISC: Form sent from advertiser to the affiliate AND the IRS with paid commissions details
FORM 1096: Form sent from advertiser to the IRS with a summary of all manually transmit W-1099 MISC forms (for less than 250 W-1099 forms)