Guide to 1099 Compliance for Work with Athletes, Agencies, and Collectives

Let’s say your organization pays hundreds of esports competition participants and contractors around the globe. This means you must file 1099 forms for all the non-employee people and organizations who get more than $600 in total from you during a year. 

1099 noncompliance can cost your business significant penalties and fines—anywhere from $60 to $660 per form and with little to no upper limit. With the USA gradually becoming a country of freelancers every day, more business owners are concerned about filing their 1099s incorrectly and getting fined and possibly audited because of improper reporting.

In this article, we focus on 1099 compliance for sports rights holders, esports, collectives managing student athletes (NIL), and talent agencies paying global content creators, but it just as well pertains to any US-based business that works with contractors.

Brushing Up On 1099 Basics

IRS Form 1099 is a collection of forms used to report payments that typically are not from an employer. Businesses use several types of 1099 forms to report payments to non-employees to the IRS, including payments for independent contractors, prize winners, rents, royalties, and more. With only a few exceptions, all non-employee payments must be reported to the IRS by businesses if a payee received over $600 in a calendar year. It is best practice for businesses to collect the necessary tax information from all their payees anytime they issue non-employee payments in preparation for filing Form 1099 at the end of the year.

Here are the deadlines for filing your 1099s for the new year:

• January 31st, 2025–  send 1099 copies to the payees.
• February 28th, 2025 – complete paper filing with the IRS.  
• April 1st, 2025 – e-file directly to the IRS.

How to Prepare for Filing 1099s to Avoid Penalties and Fines

The process differs for domestic and international payees. In the US, you send your contractors a W-9 form at the beginning of your relationship to gather all the information necessary to file a 1099 at the end of the year. For foreign payment payees, you will need them to fill out the W-8 so you can file form 1042-S about their payments.

In both cases, it is crucial to confirm that their personal data is accurate. If a payee does not provide a W-9 or if their TIN (Taxpayer Identification Number) is incorrect, businesses may need to implement backup withholding – withholding a percentage (currently 24%) from payments to the payee to prevent tax evasion on their part.

Here is an example of the domestic and international processes:

1. US Contractor:

• You sign a content creator receiving over $600 a year.
• They complete your W-9 form. 
• You use their TIN from the W-9 to complete a 1099-NEC by January 31st.

2. Foreign Contractor:

• A contractor outside the US completes the W-8 form with their payment information.
• You check if the US withholding tax applies. Unless there is a tax treaty with the payee's country, the tax is 30%. 
• File form 1042-S before March 15th. If you’re filing over 250 forms, you must do it electronically. 

If you're dealing with a mixed scenario like a sports rights holder or an esports tournament, you will have to get US-based participants their W-9, and for the foreigners their W-8s.

Penalties and Fines for 1099-Related Tax Violations

It is estimated that U.S. businesses are paying more than $5.5 billion per year in IRS penalties for employment tax violations (over $123 billion since 1995). 

Several types of penalties generally apply across most 1099 forms:

• Late filing penalties range from $60 to $330 per form and up to $3,783,000 per year, depending on when and whether you filled out your 1099s.
• Not providing the payee with copies leads to the same penalties as late filing.
• Intentional disregard of forms like 1099-NEC and 1099-MISC is subject to a minimum penalty of $660 per form, or 10% of the income reported on the form, with no maximum.
• Corrections made 30+ days before the due date are usually free. Within 30 days of the due date, the penalty is $50 per form. Thirty days after the due date and until August 1st, the fines are $100 per form. 

Types of 1099s and Their Deadlines

There are over twenty types of 1099s that serve different types of income – from dividends and real estate transactions to government and pension payments.  

Let’s look at the most common ones and those that apply most commonly to the businesses in our focus of attention.

• 1099-NEC – if you paid $600 or more to an independent contractor during the year, 1099-NEC forms must be submitted to both the IRS and the payee by January 31. This covers payments made to athletes, coaches, trainers, referees, or other individuals who are not employees of the business.
• 1099-MISC is used for other types of payments, such as royalties (if payments exceed $10) and rent (if payments are $600 or more). 1099-MISC forms are generally due to the IRS by February 28 (March 31 if filing electronically). This applies to payments for prizes or awards, rent, or other miscellaneous payments that don't fit into the non-employee compensation category.
• 1099-K applies to payments made through third-party networks or payment processors, with a threshold of $600. This means that payments processed through a third-party payment processor like PaymentLabs, PayPal, or a similar service must also be reported. 

These thresholds and deadlines are crucial for businesses to track, as failure to issue the appropriate 1099 forms can lead to the penalties we went over before.

How to Automate This Process

Managing the filing of 1099s manually almost inevitably leads to some kind of penalties and fines down the road. That’s why using a payment processing provider that automates this process will save those costs and will be instrumental in freeing up hours of your team’s work time. 

Payment Labs offers sports, esports, collectives, creative organizations, and other businesses a way to automate collecting W-9s and W-8s and subsequently generating and sending out the correct 1099 to streamline tax reporting both for your non-employee payees and you. 

Here are testimonials from our clients who have already unburdened their staff from manual work with 1099s:

• “Keeping current on tax requirements worldwide is a challenging process that Payment Labs’ platform made approachable.”

— Rick Thiher, General Manager, EVO

• “Gone are the days of worrying about compliance and year-end tax reports."

— Laurent Genin-Satoh, Managing Director, LiquidDogs

• "Payment Labs saved us during tax season. Payment Labs is a service we absolutely need."

— Chris Heiman, President and Co-Founder at MediaNug

•  “This platform has saved us time and hassle, even allowing us to automate our tax compliance.”

— Brent LaLonde, Arnold Sports Festival Event Organizer

Payment Labs specializes in compliant cross-border and domestic payment processing at scale. Most of our clients are companies like sports rights holders who pay vendors, event contractors, referees, scorekeepers, and prize winners. Collectives who pay hundreds of student athletes for their Name, Image, and Likeness (NIL). Or talent agencies who pay global content creators, streamers, and influencers. 

Whether you’re in one of these industries or not, we have an intuitive solution to address your business's specific payment processing needs. Schedule an intro call with us to see how we can save your payees and you valuable time and money filing your taxes.