As an ecommerce platform, Shopify is obligated to provide a 1099-K form to merchants who process over $20,000 and more than 200 transactions in a calendar year through the platform. This is required by the IRS so that those merchants can report their income and pay the appropriate taxes.
For any other questions related to taxes and your Shopify account, we recommend contacting a tax specialist or accounting professional.
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What information is included on a 1099?
Included on a 1099 is the individual's or organization's name, the 1099 year, the taxpayer identification number (TIN) of the payee, the dollar amount of the total payments for the calendar year, the account number to which the payment was made, the payment date, and the payer's name, address, and TIN.
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When is a 1099 required?
There are a few IRS requirements for issuing 1099s. You must issue a 1099 to any person or unincorporated business that you have paid at least $600 in rent, services, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchased from someone who is not a dealer, or payments to an attorney. You are not required to issue 1099s for payments made for personal purposes.
In addition, you do not need to issue a 1099 to corporations, although you may choose to do so. So if you pay Rent-A-Center for rent to own furniture, you would not issue them a 1099 because they are a corporation. However, if you pay an independent contractor $600 or more for services provided, you would need to issue them a 1099.
There are a few other circumstances where you are not required to issue a 1099. For example, if you make payments totaling less than $600 in a tax year to a payee, payments for product warranty repairs or replacement, payments made with a credit card, or payments made to utility companies for services.
If you are an individual with a sole proprietorship or single-member limited liability company (SMLLC), and you pay someone other than an employee for work done, you should issue that person a 1099-MISC by January 31 of the year following the year in which you made the payments. For example, if you paid a web designer in December 2018, you would need to issue them a 1099 by January 31, 2020.
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What are the consequences of not issuing a 1099?
The consequences of not issuing a 1099 can be significant. If you are required to issue a 1099 and you do not, you may be subject to a penalty. The penalty is $50 per 1099 that you fail to issue, with a maximum penalty of $545,000 per year. In addition, the IRS may also assess interest on the unpaid tax.
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Frequently Asked Questions
Do I need a 1099-K for Shopify?
No, you do not need a 1099-K for Shopify. Shopify still reports your income to the IRS.
Does Shopify report to the IRS?
Yes, on an annual basis Shopify will report information about their account owners and their transactions to the IRS. The threshold at which shop owners will receive form 1099-K from Shopify has been lowered from $20,000 in 2018 to $600 in 2022.
How to set up Shopify Payments?
Click Settings in the upper right corner of your Shopify Admin. Click Payments in the left sidebar. Enter your Tax ID or SIN in the Tax Details field. Click Save Changes. If you are not a sole proprietor, then you can also submit your SSN or Social Security Number by filling out the form on this page: https://payments.shopify.com/signup/account-setup/.
What taxes do I pay as a Shopify owner?
You must pay both the employers' and the employee's portion of FICA taxes, which is a total of 15.3%. This includes Medicare contributions for employees who are over the age of 65 and Social Security contributions for all employees, regardless of their age.
How do I file taxes with my Shopify 1099-K?
First, you'll need to complete Form 1099-K. Complete the form and attach proof of your sales from your shopify store. You can either print out your 1099-K or log into your shopify account and find the transactions that are related to your business. Next, you'll need to fill out Tax Forms 941 and 944. These forms will help you calculate your self-employment taxes for 2018. The calculations are easy to do with our online calculator! Once you've completed all of the tax forms and filings, it's time to prepare your taxes payments. Make sure to submit your payment by April 17th in order to avoid penalties!
Sources
- https://help.liverecover.com/how-do-i-set-up-my-shopify-store-to-be-compliant
- https://community.shopify.com/c/accounting-and-taxes/1099-k-forms/td-p/1540729
- https://www.irs.gov/instructions/i1099msc
- https://synder.com/blog/shopify-1099/
- https://help.voyagesms.com/how-do-i-set-up-my-shopify-store-to-be-compliant
- https://www.justanswer.com/tax/74unf-consequences-not-issuing-1099-forms-con.html
- https://taxsharkinc.com/required-to-issue-1099/
- https://www.thebalancemoney.com/what-is-a-1099-form-and-how-do-you-report-the-income-4773669
- https://quickbooks.intuit.com/r/taxes/how-to-fill-out-a-1099-form/
- https://www.shopify.com/ca/blog/1099-form
- https://www.tlnt.com/the-consequences-of-misclassifying-your-1099-contractors/
- https://www.shopify-platform.com/does-shopify-give-you-a-1099/
- https://www.youtube.com/watch
- https://www.websitebuilderinsider.com/do-you-get-a-1099-from-shopify/
- https://www.irs.gov/forms-pubs/about-form-1099-misc
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