What is the right TAX classification for a marketplace business?

[maraoz_p2022]

I have a business that is a marketplace where we connect clients and talent. The talent is the one executing the contractor work. We as a business receive the payment from the client and we process the payment for the talent for the contractual work they do through our payment system Stripe (The talent is not an employee of ours). The question is when ($$$ threshold) and what form type (1099-NEC, 1099-K or 1099-MISC) should be populated for the talent during tax season. I heard regulations have recently changed. 

Also, are the threshold at a state level or federal level? 

[KarenP12]

@maraoz_p2022 

1099-NEC, 1099-K and 1099-MISC had different amounts of money prior to 2022, but as of 2022 all of them aligned at  $600, is when you are required to issue these documents.  

• 1099-NEC instructions:  https://www.irs.gov/forms-pubs/about-form-1099-nec
• 1099 K instructions:  https://www.irs.gov/forms-pubs/about-form-1099-k
• 1099-MISC instructions: https://www.irs.gov/forms-pubs/about-form-1099-misc

Based on your description of the work, the new form 1099-NEC is the one you should be using as it is contract work and the contractors are doing this as a job, thus they should be filling out a Schedule C unless their business is a partnership or an S-Corp.

In addition to filing out the 1099-NEC or for any of the documents listed above you should file one 1096 to the federal government summarizing all the 1099-NEC or other documents that you are submitting to the government. 

 https://www.irs.gov/forms-pubs/about-form-1096

These forms are due on January 31, 2023 for the Tax Year 2022  see page 6 under Item C:   https://www.irs.gov/pub/irs-pdf/i1099gi.pdf

The IRS plans on having a new portal sometime in January, 2023 to electronically submit these forms.  Another source to electronically submit these forms is Intuit's Quick Employer Forms:   https://quickemployerforms.intuit.com/welcomeNewCustomer.htm

Access to this is included with some of the Home and Business software packages.

Most states follow the IRS thresholds, if you withhold Federal or State Taxes ensure that they are submitted on a timely basis, but this is not common with contractors.

[maraoz_p2022]

@KarenP12  Thanks for the reply would this still apply if the contractor is not doing a contract work for my company but instead for a client of ours and we are just processing the payment? 

[kopoco]

You are really working as a contractor and they are your sub-contractors.  You are connecting your customers who want work done with your sub-contractors who are wanting to be paired with work as best as I can understand your business.

Here is an article from the IRS on sub contractors and how pay works:  https://www.irs.gov › subcontractorstext.prn.pdf

This is a file that shows how the IRS defines this.  Thus if they are truly contactors then a 1099-NEC is the correct form to give to them and then you package up all the 1099-NEC for your contractors and use a 1096 to submit them to the IRS.

Look for the new process to files these electronically from IRS.gov due to come out in January, 2023 or you can use Intuit Employer Forms which works great for electronically filing these.