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paying members and taxes

Taxes and regulation

johnp

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I am trying to do some research on this subject but I am having a lot of trouble finding information. I am setting up service on my website that gives the users the opportunity to earn money. User's will have the ability to earn money, and withdraw the money when they reach a certain threshold. In effort to avoid fees I am probably going to use Dwolla as a gateway for the users to transfer their earnings from my site to their accounts. But this brings me to a major question..am I responsible for collecting the tax information for the user?

I assume that the user is responsible for reporting taxes. But I feel like there would be some information that I would need to collect for U.S. residents.

Can anyone provide any guidance on this topic?
 
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MJ DeMarco

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I believe if anyone earns > $600 you have to send them a 1099 form. So SSN information would be needed.
 

johnp

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I believe if anyone earns > $600 you have to send them a 1099 form. So SSN information would be needed.

Thanks!

I am going to look into what Google Ad sense is asking for in terms of taxes and probably just automate the process for my site.
 

royemunson

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You will need to have them fill out a W9 form. MJ is correct that you only submit the 1099 upon payments above $600 for the year in total, but get this information upfront upon sign up (which I have done electronically through affiliate programs so it can be automated online) or just post a sample W9 form and state that they need to fill out, sign, and send back in order to release payments and set them up properly.

You will find yourself in a world of hurt if you pay folks and have nowhere to send 1099's at the end of the year. People tend to disappear when they find out you are submitting how much you paid them to the IRS.

Joe
 
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johnp

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Thanks for the advice. This helps a lot. I think that I will ask them to submit the form in order to receive the payment.
 

TaxGuy

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I believe if anyone earns > $600 you have to send them a 1099 form. So SSN information would be needed.

This is true and will make the upcoming year that much more fun.

Now the question is how can we find a solution to what will be a nightmare for businesses from local service companies to large scale internet marketing outfits and everything in-between?

Not to mention that both sides will need help in doing taxes - the business that is paying contractors on the 1099(and thus writing off the "expense" of paying independent contractors) and the contractor being paid on a 1099 who will want to minimize their liability and more importantly, avoid those dreaded self-employment taxes if they file on a normal Schedule C ;)
 

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