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If I pay someone via paypal, do I still have to fill in the 1099 and/or w forms?

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2 Answers

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Currently, you have to file a 1099-M (or Misc.) for any subcontractor to whom you pay in excess of $600 per year.

Here are they IRS instructions http://www.irs.gov/pub/irs-pdf/i1099msc.pdf .

You should have all subcontractors complete a W-9 so you have sufficient information to file a 1099-M when and if they cross the $600 limit.

Most potential contractors will not want to complete the W-9 info on the front-end before trying the service so you can just warn them as they approach the $600 limit that you need the W-9 info before you pay them the 601st dollar.

Your situation is similar to what Amazon has to deal with for their "Mechanical Turk" service. You might spend a little time on their site and see how they handle their arrangements with subcontractors.

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If the company is in the UK, and I have subcontractors all over the world, do I have to fill in the correct forms for each country? – oshirowanen Mar 17 '11 at 14:12
That depends on the tax laws of the UK and each respective country. You might consider moving your operation to a tax haven country that doesn't have any extradition treaties. – Mike Walsh Mar 17 '11 at 15:57
I've not trying to avoid taxes, I am trying to avoid having to fill in 100,000 forms for the 100,000 people who i might pay. I don't understand why I have to fill in the 100,000 forms. Shouldn't that be upto the people getting paid? – oshirowanen Mar 18 '11 at 10:07
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Yes. Paypal is just a payment processor. You still need to provide a 1099 for all of your contractors.

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What is a contractor, what if someone signs up to my site, does some data entry, and I pay him for that, is he classified as a contractor? What if I get 100,000 people who sign up to the site to do data entry. Will I have to do 100,000 1099 forms? – oshirowanen Mar 17 '11 at 12:33
Yes. Anyone you pay has to have a 1099. Mike's post below has the link. For example, if you are an Amazon Affiliate, they send you a 1099 even if you only made $1. – Jarie Bolander Mar 17 '11 at 14:58
Oh, so I don't have to fill in 100,000 1099 forms, I just have to make sure the people receiving the money fill them in? – oshirowanen Mar 18 '11 at 14:54
In the US, the payer completes the 1099 which is a multipart form. One copy goes to the IRS and one copy goes to the person who received the funds. The whole concept here is that the IRS wants to make sure the recipients report taxable income when they file their personal returns. – Mike Walsh Mar 18 '11 at 15:07
You need to produce 1099's for everyone you pay over $600 dollar as Mike said in his answer. – Jarie Bolander Mar 20 '11 at 1:06

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