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The sharing economy and tax compliance, part 2: What type of 1099?

On Behalf of | Sep 11, 2015 | Tax Evasion

Let’s resume our discussion of the complexities of employment taxes for people involved in the social-sharing economy.

One example of this is the controversy about whether drivers for Uber, a popular ride-sharing service, are independent contractors rather than employees. We wrote about that in the first part of this post on August 29.

In this part of the post, let’s consider some of the possible scenarios for those who work for social-sharing companies.

If you work for such a company, you probably won’t have taxes withheld from the payments you receive. Does that mean, however, that you can count on getting a Form 1099?

The answer is no. You might get a 1099 or you might not. Different companies have different policies about sending these out, so it depends a lot on which company you work for.

Even if you get a 1099, you need to be aware of what type of 1099 it is. Many people are familiar with Form 1099-MISC, which is for miscellaneous income made by independent contractors.

But it is possible that instead of a Form 1099-MISC you could receive a Form 1099-K or some other type of 1099.

What is Form 1099-K? It’s a fairly new form, used by credit-card companies, banks and third-party payment services such as Paypal to provide information about transactions they have processed.

Since 2012, federal law has required these entities to send this informational form to business owners and the IRS. It was intended as a mechanism to prevent the potential underreporting of business income.

More recently, however, some social-sharing companies have extended Form 1099-K to their service providers. The premise is that the sharing company is merely an intermediary that has processed an exchange between independent individuals.

There are other types of 1099s as well, often replete with multiple schedules. Social sharing isn’t only a brave new world for service delivery; it is also a challenging new world for tax compliance.


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