๐Ÿˆ
ยป Forums ยป Clients ยป Tax obligations on the client side
Page options
simensen
Community Member

Tax obligations on the client side

I'm trying to find information on how taxes need to be reported by clients. If I work with individuals directly I know I need to send a 1099 to them. Will I need to send a 1099 to oDesk for all services performed? It sounds like oDesk themselves will send a 1099 (as needed) to the freelancers... I tried to ask oDesk support and I got nowhere useful at all. It was a pretty bad experience, to be honest. ๐Ÿ˜• A little bummed by that. So in short, if I hire someone through oDesk, do I have to send a 1099 to someone? If so, to whom? If not a 1099, is there something else I need to be sending somewhere? Thanks!
54 REPLIES 54
kochubei_valeria
Community Member

Hi Beau! Thank you for your question! If your freelancers are not classified as employees, typically you are not responsible for filing their taxes. If your freelancers can be classified as employees it's recommended that you hire them through oDesk Payroll. In both cases oDesk provides necessary tax forms for freelancers. You can learn more from this help article.
~ Valeria
Upwork

Hi Valeria or any Mod.

 

I am currently a freelancer. Living in an overseas nation where I am not a citizen or resident.

 

My client is also based overseas.

 

Who do I pay taxes to?

 

I will research now but maybe you can help hack this for me.

Here's the thing, Leo...

 

Your profile says you live in Taiwan. You say you're living there, a place where you not a citizen or permanent resident.

 

But we don't even know what your country of citizenship is.

 

So how can anybody here answer your question? You could literally be from anywhere else, and each country has its own rules about taxes for its citizens who live abroad. And those rules will apply differently depending on your situation.

 

Upwork officials are not going to provide you with specific answers about tax questions, because they don't know the answers to your questions, and they would risk causing problems if they offered advice. They are no more likely to provide you with specific answers about your individual tax situation than they are to provide you with a prescription for medication. It's too risky and they can't do that for everybody.

 

Beyond reading the limited information about taxes available in Upwork's Help pages, you are really going to need to rely on the tax information posted and published by the countries you're involved with, and on the help of qualified professionals.

 

You (and every other Upwork client and contractor) are welcome to post questions in the community forum, but you will not receive specific answers to most questions from Upwork forum moderators. You may receive excellent, accurate advice from Forum participants. You may receive no answer at all. You may receive advice which is well-meaning, but flat-out wrong.

 

Your would receive more targeted, more accurate information if you hired a qualified tax expert on Upwork, somebody who is from your country (or two people, from both of your countries, as the case may be).

 

Or you could consult a tax expert locally.

Hi Leo,

 

With few exceptions, all Upwork freelancers are responsible for paying their own taxes. Please, make sure that you have a legal permission to work in the country you are currently in and consult a tax expert to learn more about how you are supposed to pay taxes in your country of citizenship and the country you are in. 

~ Valeria
Upwork

It says on my tax information that I need to supply a VAT number but in my country (Ireland)  I'm able to earn โ‚ฌ37,500 before being elible for VAT. As I'm doing upwork part time I don't expect to be earning more than this. So upwork will charge my clients VAT even though I don't need to be registered for it? I don't get it.

Hi Dave,

 

Please, refer to the original post by Garnor in this thread, especially to points 3 and 7.

 

I hope that information helps.

~ Valeria
Upwork

Hi Valeria: I need some clarifications on this. Can you advise?

 

I'm a US-based client who spent about $1,100 in 2015 on Upwork freelancers. One of the freelancer is foreign-based and I've paid her approx. $700. 

 

So for the IRS, if I pay any freelancer more than $600, I have to send the freelancer a 1099-MISC. But I understand that I don't have to send this foreign freelancer a 1099-MISC? 

 

Historically, when I file anything as freelancer expenses and it's more than $600, I have to file 1099-MISC or I wouldn't be able to write it off as an expense. What's the workaround then, for spending $1,100 in 2015? Should I be expensing this under a different category?

lenaellis
Community Member

While we canโ€™t provide tax advice (so please consult with your accountant or tax professional before filing), we believe that one of the many benefits of using Upwork is that, because Upwork is an organization required by law to file Form 1099-K, you are not required to file any form 1099-MISC with respect to any payments you make to your freelancers through Upwork. Some clients will still claim a business expense on their income tax return. For substantiation, the client can retain for their records the relevant information from their "Reports" available in Upwork. There are several options, including "Custom Export" which can be retained by the client

Untitled

Thanks so much Lena!

cytan8
Community Member

Thanks for the reponse Lena. I feel like I'm still not really getting an answer, since my accountant is insisting that any freelancer I pay more than $600 in a given year I have to issue a 1099. And I can't write anything more than $600 off as freelancer expense unless I issue a 1099. See the catch 22 scenario I'm in? 

Upwork is walking a fine line because they really sound like they think business owners don't need to file form 1099-misc for workers they pay on the site - but they do.  Your accountant is correct.

 

Upwork is confusing their 1099-K requirement with the hiring business owners requirements (1099-misc). If a business owner pays a contractor more than $600 through upwork, then they're required to file form 1099-misc or they cannot deduct the payments on their tax return;  Done.

 

 Upwork is required to file form 1099-k (because they're a payemnt processing service) and the business owner is required to file form 1099-mis; that's how it works. It's very common for US contractors to correctly receive BOTH 1099-k (which they don't actually enter like W-2s and other 1099s) AND  1099-misc.

 

I saw a job for a client who spent $40,000 and it's all being audited by the IRS - he wants help fighting it. I told him what he needs to do to keep his deductions is file the 1099-misc for every contractor that he's required to, no way out of it. 

 

I'm an EA which is like a CPA (more tax focused), but from the IRS instead of the individual states, as for a CPA

Hi Lena,


Does Upwork submit the 1099 on behalf of the hiring company or on behalf of Upwork? I am trying to figure out if we need to then send the freelancer a 1099 as well from our company for tax purposes.

thanks

Kelli

 

re: "Does Upwork submit the 1099 on behalf of the hiring company or on behalf of Upwork?

Yes.

 

I'm a contractor. I already received a copy of my 1099 from Upwork. Upwork handles this.

 

re: "I am trying to figure out if we need to then send the freelancer a 1099 as well from our company for tax purposes."

 

No.

 

I also am a client. Like you, I live in the United States.

 

You should report the services you pay for on Upwork to the IRS in the same way you report what you spend on a chicken salad when you go to lunch: not at all.

 

Upwork contractors are not employees.

When I hire a contractor to create something for me on Upwork, that is a business-to-business transaction.

 

By this, I mean that I am not obligated to file any taxes or pay any taxes on behalf of the freelancers.

 

I may still include the expenses my business incurs in payments to Upwork contractors as part of my tax filings, as these may be legitimate business expenses that can lower my tax obligation.


 

You should report the services you pay for on Upwork to the IRS in the same way you report what you spend on a chicken salad when you go to lunch: not at all.

 

Upwork contractors are not employees.

When I hire a contractor to create something for me on Upwork, that is a business-to-business transaction.

 

By this, I mean that I am not obligated to file any taxes or pay any taxes on behalf of the freelancers.

 

I may still include the expenses my business incurs in payments to Upwork contractors as part of my tax filings, as these may be legitimate business expenses that can lower my tax obligation.


 You are completely incorrect. It's not the same as a salad becuase the salad doesn't file taxes.

 

The "CONTACTOR" does. And if you pay them over $600 during the year, then you must get their W-9 info (which upwork has) and file form 1099-misc; otherwise, the IRS can dissalow the deductions. Like they're for an upwork business who spent $40k; he's trying to 'fight' it but that will be a sad fight. 

 

Upwork - required to file 1099-K for all payments

Business Owner - required to file 1099-misc if they paid over $600 total 

 

There's no debate on this! It's law. Upwork has contractors complete W-9 and therefore has the info you need to file the form. 

I read through the responses Upwork provided on 1099-MISC question from the  first client, but I still have cocerns as an  US-based client;  I dont pay directly to my freelancers. All payment are made to Upwork as shown on my Bank statement. For Tax reporting the 1099-MISC should issued to Upwork since we don't require our freelancers to fill out another W-9 when they are hired since they have this completed with Upwork when they first signed up.


@Global Language Sy L wrote:

I read through the responses Upwork provided on 1099-MISC question from the  first client, but I still have cocerns as an  US-based client;  I dont pay directly to my freelancers. All payment are made to Upwork as shown on my Bank statement. For Tax reporting the 1099-MISC should issued to Upwork since we don't require our freelancers to fill out another W-9 when they are hired since they have this completed with Upwork when they first signed up.


 Great try! Fortunately, taxes are not based on our logic or US would be bankrupt ๐Ÿ™‚

 

The contractor provided their W-9 info because they're being hired through the site. The 1099-misc has to fall on someone and since the business owner is the one deducting it on their tax return; it's pretty clear. As a payment processor and nothing to do with how the worker does their job for you - Upwork is only a payment processor. So there's no question of the 1099-misc requirement.   

 

At first there was confusion around this 10 years, but now the IRS is clear and auditing...

Hello, 

 

Could you confirm that this is correct: If I pay a freelancer through UpWork, I do not have t file a 1099 for them, whether they are domestic (US) or overseas contractors (I have used both). Is there a 1099 I have to file for upwork? I assume in my taxreturn I can file the expense as contractor expenses.

 

And another question: is my contract with the contractor or with Upwork? What if I have concerns regarding NDA, copyright issues or the like? Is there some legalese in place?

 

Thank you

AC

Hi Ariane,

 

Thanks for reaching out to us. I'll ask someone from our team to follow up with you directly and provide all the information you're looking for.

~ Vladimir
Upwork


@Ariane C wrote:

Hello, 

 

Could you confirm that this is correct: If I pay a freelancer through UpWork, I do not have t file a 1099 for them, whether they are domestic (US) or overseas contractors (I have used both). Is there a 1099 I have to file for upwork? I assume in my taxreturn I can file the expense as contractor expenses.

 

And another question: is my contract with the contractor or with Upwork? What if I have concerns regarding NDA, copyright issues or the like? Is there some legalese in place?

 

Thank you

AC


 Hi Ariane,

 

To deduct contractor expenses, be sure you filed a form 1099-misc for each contractor you paid more than $600. You can see my lenthier explanations about this under other questions. 

 

Your second question follows the reason the 1099-misc is required - upwork is a payment processor and they're trying to keep themselves as just that. Upwork has nothing to do with facilitating the work you hire your contractors for - so this should hold fine.

 

You can definately (and should) use whatever contracts you normally use for NDA, copyright etc. with your contractors on Upwork - be sure to have them sign before you start. Otherwise, Upwork doesn't have the right to include legal agreements for you and the contractor. Ie. they do not have anything like that in place because they legally can't ...

 

Hope this helps..

Amanda,

 

Under the new Internal Revenue Code Section 6050W, clients that use Upwork are no longer required to file Form 1099-MISC for freelancers paid through Upwork. Because you are not paying your freelancer directly, the general principle that you should send a 1099-MISC when paying for services does not apply.

When you pay your freelancer on Upwork, you actually pay Upwork Escrow Inc., which is our licensed escrow subsidiary. Upwork Escrow Inc. acts as a third party settlement organization under Internal Revenue Code Section 6050W. As a third party settlement organization, we are required to report the payments we remit to your freelancer to the Internal Revenue Service (IRS) on Form 1099-K, in accordance with IRS regulations.

Those regulations provide that, because you pay your freelancers through usโ€”instead of paying them directly, we are required to file Forms 1099-K and you do not have to report those payments on Form 1099-MISC. This is true even if your freelancer does not receive enough payments for us to report on them specifically. The fact that we are a third party settlement organization required to make these reports is the determining factor.  

 

This information is also found in our Help Center.

Untitled

Upwork has missinterpretted tax code and current tax law application. This is why your business customers are getting audited and their payments to contractors are being dissallowed (meaning, they must now pay tax on the $40,000 they spent on Upwork contractors). Business owners cannot deduct payments to freelancers without filing form 1099-misc.  

 

The fact that Upwork has a payment processor filing requirement in no way, shape or form, changes the business owners tax responsibility. The 3rd party organization has to do with Upworks payment processing tax obligation and in no way determins that business owners can now deduct contractor payments without filing form 1099-misc to freelancers whom they paid over $600. 

 

I do see how 'human logic' is being used that since Upwork filed the 1099-k, that no other form should be needed. But tax law is not 'human logic' and only well experienced tax professionals truly understand this. 

 

It's perfectly normal for freelancers to receive both form 1099-k and form 1099-misc. This is because freelancers don't report 1099-k on their taxes and it's actually a way for the IRS to trase Upwork and payment processor's income tax liability. The 1099-k requirement is about Upwork, albeit tracked through the freelancers you submit the form too. The 1099-misc is a business owner requirement to be able to deduct the amount as an expense on their taxes and for the freelancer to report on their taxes as income. 

 

You will see this become a much bigger issue, very soon. I have recommendations for how to correct it; if this doesn't fall on deaf ears at Upwork! 

 

Goodluck! 

Amanda, what do you hope to gain by saying this?

 

You don't work for Upwork, and you don't work for the IRS.

 

Upwork is correct on this issue.

Please advise is oDesk stil available? Additionally, please advise how Upwork is asccoicated and how are you refering current clients looking to make the switch. 

 

I am a client of Upwork looking to bring on freelancers possibly into the employee roll. 

Hi Robert,

 

Thank you for your message. oDesk and Elance were relaunched as Upwork in 2015. You can refer to this press release for more information. All existing users of both platforms were transitioned to Upwork. 

 

Thank you

Pradeep

Upwork
charlieecpa
Community Member

Hi Beau,

 

I'm a U.S. licensed CPA. I can give you a little bit of free (informal) advice:

 

As a U.S. business owner, if you pay an individual or disregarded entity (LLC, partnership, sole proprietor) more than $600 for service work, you are required to issue them with a 1099-MISC. 

 

You must provide the independent contractor with a copy of the 1099 by Feb 2nd. You must also file the 1099 with the IRS by March 2nd (if by paper) or March 31st if filed electronically.

 

If you use Quickbooks online, you can do this electronically.

 

Now the million dollar question is "How does this work if you hire a contractor through Upwork". 

 

The answer is: who knows....

 

In order to file a 1099 you need to contractors personal details and tax reporting information. Upwork does not provide this to us clients. 

 

When we receive a billing statement it shows up as Upwork, not the individual contractor. 

 

Given this, my assumption is that Upwork is filing 1099's for each U.S. contractor. But again, it's a mystery to me. 

 

Would be interested to hear whether the freelancers out there have the option to request a 1099 from Upwork? If you do, then it's fair to assume that they are handling this on their side. 

Hi Charlie and Beau,

 

US freelancers, inluding those who earn more than $600 will not receive 1099 form from Upwork due to the recent changes in tax code.

 

Please, refer to this help article to learn more about categories of freelancers that will receive tax forms from Upwork.

 

 

~ Valeria
Upwork

Thanks so much for your reply Valeria and for that article.

 

Now that the tax rules have changed and you no longer send out 1099-MISC, this is a pretty critical issue for us clients in the US, especially as our Feb 2 deadline for 1099 filing is fast approaching.

 

So I understand that you do not send out 1099 forms.  Does this mean that you will now make available to us the contractor's address information so we can completely fill out the 1099?  Specifically, we need the recipients ID number, address & phone.

 

And who - in your eyes - is considered to have paid the 10% fee... the client or the contractor?

 

Thanks so much,

Jon

Posting this just to make sure I'm right and in case it helps anyone else in my shoes.

 

Just got off the phone with UpWork (it was much more pleasant than I had anticipated).

 

Also got with a tax advisor.

 

Both UpWork and the tax advisor agree: it's UpWork's responsibility to report the contractor's income to the IRS. And it sounds like they (UpWork) does do that. But it appears that (according to UW) that the 1099 is not the vehicle they use to do that.

 

So sounds like I, as a client, simply report the money paid to UpWork as a business expense and then let UpWork worry about reporting what the contractor received.

 

Can an UpWork staff member validate this, just to make sure I'm on target?

 

Sincerely,

Jon

 

P.S. I'm not a tax professional

Someone really needs to sort this out (for US taxes).  What business expense category should I be using? I was going to say contract labor, but then that means I have to supply 1099-MISCs, according to the Schedule C instructions.

I'm a client and I code my graphic designer (that I use through Upwork) as an advertising expense (per Turbotax).  I do not plan on issuing a 1099 because I spent less than $600 in 2015.  Now, for 2016, I'll be spending more.  But, when I had Elance they sent 1099's. 

This is what Turbox says:

 

Contract Labor

If you paid an independent contractor or freelancer $600 or more for services on a project and did not withhold any type of taxes, you are required to send that contractor, and the IRS, a Form 1099-MISC.

Examples include:
- Fees paid to sub- and independent contractors
- Fees paid for additional project support
- Fees paid for creative resources
- Fees paid for outside research, data collection

More examples:
- Part-time programmers and coders for special projects
- Subcontractors such as writers, designers, engineers hired for a project
- Additional administrative, data entry support
- Real estate processors
- Stage personnel, audio and sound technicians, choreographers
- Seasonal workers, if paid as independent contractors
- Fees paid for outsourcing specific project work

 

Susan F, I know what the rules are. That's why I am asking.

 

My freelancer does not do advertising or promotional work. She fits the definition of contract labor.

I received a complete 1099 form from Upwork this week. In the mail. Physical mail. For all work I did as a contractor in 2015.

 

The money I paid to contractors was a business expense.

 

I have no tax obligations as an employer for money I spent on business expenses during the year. I will not be issuing 1099 forms or taking further steps as a client.

marciamalory
Community Member

Preston, if you file Schedule C, you can't just lump all your business expenses together. You have to categorise them: office supplies, food, travel, rent, commissions and fees, contractor services, etc.

re: "if you file Schedule C, you can't just lump all your business expenses together. You have to categorise them: office supplies, food, travel, rent, commissions and fees, contractor services, etc."

 

Was not referring to filing for business expenses.

 

Was simply saying that I do not need to send 1099 forms out for contractors, nor do I need to pay employee-related taxes for contractors. Hence, no obligations.

 

What you are referring to actually means "getting money back" (or not paying as much tax), due to expenses incurred.

 

You are correct that business expenses need to be categorized if they are to be claimed. But that's a different topic than being obligated to file forms on behalf of contractors (I'm not) or paying additional taxes.

Hi Marcia,

Would you mind sharing (in general terms) how you ended up itemizing Upwork as a business expense? 

Thanks!

Paul

 


@Marcia M wrote:
Preston, if you file Schedule C, you can't just lump all your business expenses together. You have to categorise them: office supplies, food, travel, rent, commissions and fees, contractor services, etc.

 

 

marciamalory
Community Member

Suppose I report $1000 was spent on private contractors. What happens if the IRS wants to investigate this further? If this was a US contractor, what happens if they never received a 1099? The rules specifically say I'm supposed to send a 1099. If Upwork is sending 1099s, then Upwork is hiring the freelancers, not me.Or does the 1099 have the client's name on it, rather than Upwork, even though Upwork sent it?

With regards to the 10% service fee....that is paid by freelancers, not clients.

Hi Team,

 

Based on what UpWork and my tax professional told me, here is the crux issue: my UpWork contractors (in the eyes of the IRS) don't work for me.  They work for UpWork.  That's why UpWork is responsible to report to the IRS the money paid to them.

 

The IRS / Tax software regulations quoted here that say we clients are responsible for issuing the 1099 would be correct if they worked for us directly.  They don't.

 

But I'm not a tax pro, this is just my understanding from talking with UpWork and my tax pro at the same time about this issue.

 

Anyone have any info to correct this?

 

thx,

Latest Articles
Learning Paths