What is a 1099 form and why might you need one?
In the streaming industry, most of your revenue will fall under the category of independent contractor payments.These payments can be for any amount and from any number of sources, but all must be accounted for and reported in order to pay taxes on them. In the US as of 2018, if you receive more than $600 in income from a single source (i.e. Twitch and YouTube ad revenue, subscriptions, Streamlabs donations, company sponsorships, etc.), that source will fill out and send you a 1099 form. Similarly, if you pay someone more than $600 for a service, you must fill out a 1099 form. A 1099 form will have information on the amount of money you (or your contractor) received and the amount the company or contractor is reporting to the government. These documents, in combination with your own records, will help you with reporting your own taxes.
To be clear, there are actually several different 1099 forms, but as a streamer – an independent contractor – you will most likely be using the 1099-MISC. Most companies, including the major streaming and video platforms, will require you to fill out tax documents like the W-9 form before they send your first payment to ensure their ability to report any amount you receive. At the beginning of the new year they will send you the 1099-MISC document with the total amount they paid for you to report.
How do you pay contract laborers like graphic designers?
Just as companies keep track of how much they pay you, so must you keep track of how much you pay out to contractors that work for you. Again, in the US you must send a 1099-MISC form to any contractor – such as a graphic designer – you paid more than $600 cumulatively over a year, and file that form with the IRS by January 31st. If you paid the contractor under $600 you are not obligated to send the form, but the contractor should still be tracking and reporting your payment, just as you should be tracking and reporting all of your income.
Pro Tip: Even if the payment is under $600 for the year, keeping track of this information is important because any expenses you incur on behalf of your business – that is, your stream – will decrease your overall income, meaning a coinciding decrease in your tax bill. Even if you don’t net a profit during the year, those losses in contractor payments can help offset taxes from your other income sources, saving you money!
How and when the contractor payment completes is decided by the parties involved. For example, some designers may ask for half the fee upfront, especially if it is a big project. In order to avoid confusion, it is best to have some type of contract in place before the project begins; if any problems arise in the future, there is something in writing to settle the dispute. A contract may not be as critical for smaller payments, but consider writing one if there are key parts of the project where things could go wrong.
If you hired or are hiring a contractor for $600 or more, make sure you ask for the individual’s W-9 form. This form will have crucial information including the contractor’s taxpayer identification number, address, and legal name. You cannot file a 1099 without this information, but be aware that some contractors may not want to give you their W-9s in order to avoid filing this income. You will have substantial penalties for not filing contractor payments, so make sure you receive their W-9 before you pay them. Corporation payments, on the other hand, do not need to be sent a 1099 document.
- If you receive more than $600 in income from a single source (i.e. Twitch and YouTube ad revenue, subscriptions, Streamlabs donations, company sponsorships, etc.), you must report in your tax return the income to match the 1099-MISC form filled out and sent to you by Twitch/YouTube.
- You must fill out and send a 1099-MISC form to any individual contractor you paid more than $600 cumulatively over a year, and file that form with the IRS by January 31st.
- You cannot file a 1099 without your contractor’s W-9 form, which includes his or her taxpayer identification number, address, and legal name.
This process may be slightly confusing at first, so financial professionals and even some software applications can assist with this process. Consulting and referrals to qualified professionals are available to Pipeline community members, so join here for more info.