Q. (cont.) In the past the rule was that these vendors, for whatever reason, were not tax reportable, but I am not familiar with third party commissions. Can you please advise?
A. Regarding these third party vendors: Do you know if they are corporations? Do the payments exceed $600 in a year? What is the nature of the commissions they are receiving? I'm trying to understand why they might not have been tax reportable in the past. Please give me a little more detail.
Q. I am not sure ... some are individuals too. Yes, many exceed the $600.00. In most instances, these commissions relate to endorsements that we get from a client and there is a third party involved, i.e., we have a client who signs a deal with Nike and they are getting $100K, we get 20% and with have an agreement with another agency or manager, etc., that we split the commission with them. I do believe that we should be reporting these commissions and need confirmation.
A. I spoke to IRS information specialist Mr. Estepp (ID #1001306188) today on this one. He said that most likely you should be reporting these amounts to any 1099-eligible third parties receiving a share of the commissions you get.
First, the 1099s should follow the money: The organizations that make the payments are generally the ones that issue the 1099s. So if Nike sends you a check for the 20 percent, and you in turn pay the third parties half of that, you wrote checks for that portion and therefore you issue 1099s for the amounts you paid out. It's my impression from your question that this is how this is being handled. However, if Nike handles the whole process, splitting the commission and making the divided-up payments to both you and the various third parties, then they would issue the 1099s.
Also, if you do receive the entire commission and you do the splitting up and remitting of it to the third parties, you don't want your organization to owe the tax on the whole amount. Issuing 1099s for the amounts you sent on to the third parties would take care of that problem.