Stripe 1099 tax form

[anonrig]

Particularly in US it is required to get a 1099 tax form for incomes. I recently got mine from Github sponsors but not on Polar.

Is this a bug?

Ref: https://support.stripe.com/express/topics/1099-tax-forms

[birkjernstrom]

Thanks @anonrig for reporting this. Yes, a bug in form of human error. I was under the assumption that 1099-NEC would be sent automatically by Stripe as part of Stripe Express, but thanks to your report and further investigation I see that it needs to be configured first before automatically being sent.

I've done that now, but want to confirm the settings with our tax accountants to ensure it's right for both parties. It will be sent digitally once I've received confirmation (ETA Monday). Thanks again for reporting this @anonrig so we can address it correctly and automate it for the future & my sincere apologies for missing this in the first place.

Out of curiosity: When did you receive it from GitHub and was it digitally or in the form of a physical letter?

[anonrig]

I received it on Jan 15 (Typically it's sent anytime after Jan 1st). I received both electronically and via mail, but actual mail is not required. An electronic copy works as well. (But please validate if the option to send the physical document should exist to comply with laws or not)

[birkjernstrom]

Thanks @anonrig. I re-read and researched a lot on this topic over the weekend. It refreshed my memory, understanding and earlier conversations with accountants ~1y ago - I've now also received confirmation from our accountants on the below.

Polar should issue 1099-K and not 1099-NEC. The latter is for compensation to contractors and non-employees vs. facilitating payments as a payment settlement entity (more info here).

For tax year 2023, the 1099-K filing threshold is:

1. $20,000 or
2. 200 transactions

The latter is what confused me in my initial response on Saturday. I was under the assumption & belief that the filing threshold was $600 from conversations with accountants in Q1'23. However, I've since learned that this was indeed the goal of the IRS, but that they shared an update on November 21st to keep it at previous thresholds (above) for 2023. Still discussions about future thresholds for 2024 and onwards with suggestions of reducing it to $5,000 vs. $600.

So on Saturday, I was confused to see 1099-K be at $20,000. Seeing that 1099-NEC was $600 and still believing that was the threshold, I made the mistake of thinking it had to be the 1099-NEC then. I apologies for passing that confusion onwards and glad I researched & spoke to our accountants before actioning it. Since 1099-K is indeed the right one for Polar and our customers, but now with higher thresholds than I anticipated (good for everyone).

This also explains of course why no filing had been made and automated by Stripe. Our setting was 1099-K and Stripe is updating these thresholds based on news from IRS. However, it's crucial to note of course that individuals still need to report their income from Polar in their individual tax declarations.

I hope this clears things up @anonrig & I apologies for creating confusion over the weekend here.

[anonrig]

Github sent 1099-NEC, and according to TurboTax, if you get paid more than 600$, you need to get a 1099-NEC from the business. (ref: https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-forms/get-1099-nec-1099-misc-made-money-self-employment/L1KbuRZWC_US_en_US#:~:text=If%20you%20weren%27t%20paid,need%20to%20report%20the%20income.)

I didn't understand why Github is sending 1099-NEC but Polar isn't?

[birkjernstrom]

Great follow-up question @anonrig - I should have foreseen & addressed it. Definitely want to make sure this is clear and I hope the below clarifies the subtle & important nuances here between these forms. Combined with why Polar should issue 1099-K and my interpretation (I can't speak on their behalf) as to why GitHub elected to go a different path requiring 1099-NEC. I'm also happy to schedule a call if you'd want & it's still unclear.

Since these forms are common and might attract SEO traffic, apologies for being formal, but I want to make the following disclaimers clear to anyone else who might stumble upon this thread in the future in a different context:

1. Individuals are required to file income regardless of size and irrespective of any 1099 forms being filed
2. This is not personal tax advice re: 1099 forms, but specifically about why Polar.sh issues 1099-K vs. other forms to developers on the platform. I'm not a tax professional & this is based on conversations with our licensed tax accountants & referencing other online materials on the topic relevant to Polar's requirements specifically vs. individual advice.

1099-K vs. 1099-NEC

The article you linked to refers specifically to 1099-NEC & 1099-MISC and their threshold of $600 in the context of "the company or individual you worked for", i.e a paid consultant or freelancer to a business. Latter is an important nuance that I'll get back to.

TurboTax also has this great article on the difference between 1099-K, 1099-NEC & 1099-MISC

If you’re self-employed and accept credit, debit, or prepaid cards, you may receive Form 1099-K for transactions processed by a third party. This includes creators, influencers, rideshare drivers, or side-giggers. If you’re an online seller selling on platforms like Ebay, AirBnB, Etsy, and VRBO, you may also receive Form 1099-K.

Referenced above is also the specific payment form, e.g credit, debit & prepaid cards, which is an important nuance too. Taxbandits offers this helpful matrix.

So the important traits here are:

1. Relationship with the business, e.g contractor/freelancer or seller via platforms/marketplaces
2. Payment form, i.e credit, debit, prepaid cards for online transactions or other

In the case of Polar:

1. We handle payments between purchaser and developers for their services
2. Developers can offer subscriptions & services to purchasers, but are not independent contractors or freelancers to Polar (as mentioned in our terms)
3. Payments on Polar are made with credit, debit or prepaid cards

Therefore, we meet the requirements for 1099-K since the relationship is not with contractors/vendors/freelancers, but developers selling services via our platform with us being responsible for the online payments for them. This is what Stripe refers to as the Payment Settlement Entity (PSE) below with 1099-K requirements too.

We want to be the merchant of record for these transactions since it enables us to capture & remit VAT for services in EU for instance which we consider an important part of our offering.

GitHub

I can't speak on their behalf so again this is my interpretation.

GitHub is different from Polar in:

1. GitHub does not consider themselves to be nor seeks to be the merchant of record AFAIK
2. GitHub explicitly considers developers on GitHub Sponsors to be Independent Contractors to GitHub as part of this program
3. GitHub offers donations alone vs. any digital services (as a product at least)
4. GitHub offers organizations to pay using many different means, i.e invoicing etc.

So considering the considerations for 1099-NEC:

1. Contractor/freelancer/vendor to given business
2. Payment forms beyond debit, credit, prepaid cards etc

Given above, GitHub fits 1099-NEC considerations vs. 1099-K. As to why they explicitly consider developers independent contractors, I would refer to them - I can only speculate which would be neither helpful or appropriate.

Future requirements

I hope I've clarified why Polar is required to issue 1099-K and not 1099-NEC. Plus provided a good explanation as to why GitHub issues 1099-NEC instead of 1099-K to the best of my abilities using public information without any speculation.

Finally, Polar is expanding our offering all the time. We have donations on the horizon too (https://github.com/polarsource/polar/issues/2627) along with considering more ways for customers to pay & developers to get paid in the future. We're working with tax & legal professionals both in US & abroad to continuously update our terms and business practices to be compliant. So our requirements might change in the future as we expand which could impact which 1099 forms we need to file specifically (it's possible to have to file multiple).

I appreciate your patience & questions @anonrig to clarify this all. I hope the above answers all of your questions, but don't hesitate to ask if you'd prefer to schedule a call. I want to make sure it's clear & intend to use the above to better document things on our side too for future reference.

[birkjernstrom]

@anonrig Just wanted to check-in and see if the above answered your questions? I want to make sure it's clear why we're issuing 1099-K at Polar and that there are no further questions or concerns.