Disclaimer: The following is unofficial guidance. Your team should consult the applicable tax authority or a tax attorney to your organization and/or country.
Generally speaking, an individual you pay for referrals with a cash equivalent that exceeds $600 in a calendar year is considered a 1099 (independent) contractor by the IRS, and requires a 1099-MISC form. To submit a 1099, you will need them to complete a W-9 with their information.
Ambassador does not have a dedicated feature to collect, store, or process tax related forms. However, functionality related to this is on our roadmap. In the meantime...
Here are the ways that Ambassador can support you:
Connect you with a partnered vendor to generate the 1099's from W-9's you've collected.
Which category of needs do you fall into?
"I want to limit the referral reward amount an individual can earn in a calendar year, and avoid tax forms all together."
Limit the amount an individual can earn in a calendar year
If you would like to limit the amount an individual can earn in a calendar year so that you don't have to collect or manage tax forms at all, we can enable the "Yearly Limit" feature and enter the threshold amount of your choice, such as $599. Click here to learn more.
How it works:
Once an individual has reached the limit, new commissions can still be created and approved, but they will remain in the "Unpaid" status/tab until you try to pay them the next calendar year.
If you attempt to pay a commission when the individual is over the limit or would put them over the limit, you will receive an error and the commission will remain in the "Unpaid" status/tab.
You cannot override the limit for a specific individual with the same email address.
The limit is set for each campaign. If you have a program where an individual can be in more than one campaign but you want to limit the total they can earn across all campaigns, you will need to email your CSM or support@getambassador.com to set the limit on an account level in our backend.
Allow individuals to earn more than $600, with the use of W9 and 1099 tax forms.
Ambassador does not have automation to collect and file tax forms on your behalf, but there are ways that we can help.
Your team manages the process - During Onboarding, our team will guide you through setting up reporting and features that can help you request the W-9, report on, and manage the process.
Managed-Service - For an additional fee, there may be some of this process that Ambassador can help support through our Managed Services. Let us know if you are interested in this, and we can schedule some time to discuss specifics and determine the cost.
Features available in Ambassador to assist with tax form workflows
If you would like to allow individuals to earn over the $600 taxable threshold in cash equivalent rewards, there are a few features that can assist with your workflow.
Choose one of these to help determine the right setup for you:
If 1-4 referrals would put the individual over the limit, we recommend requesting the W9 at initial enrollment in the program to avoid payout delays that could impact the number of referrals they send you.
If your reward amount is small enough that it would take a lot of referrals to reach the limit, you may want to wait till they've hit a specified threshold to ask for the W-9.
Collect the W-9 at Initial Enrollment:
Within your enrollment module or form, mention that you require a W-9 for payments over $600, and include a link to the IRS W-9 form with instructions for them to complete it and send to your company via email or mail.
Tip: For a secure and easy way to collect this form, you can search for tools online like https://getw9.tax.
Within your New Ambassador Welcome email, add the same call-to-action and attach or link the W-9.
Create a Segment in Ambassador named "Needs W9" with smart conditions that automatically adds newly enrolled contacts to it. And another named "W9 Received".
Once the W9 is received, move the contact from "Needs W9" to "W9 Received".
When approving/paying commissions, filter for Ambassador is in segment “W9 Received” and only pay those.
Then, filter the commissions for “W9 Needed” and export. Use this report to send a reminder email to the individuals letting them know that they have a reward available to be paid once they submit their W-9.
Collect the W-9 later:
Create a segment in Ambassador named "W9 Needed" with conditions that add a contact if they've earned a specified payout amount but not yet over the limit, such as $500. And another segment named "W9 Received"
Tip: You can set this to the limit, but this gives you some lead way to resolve before more commissions come in.
When approving/paying commissions, filter for Ambassador that are not in the segment “W9 Needed” and only pay those.
Then, filter the commissions for “W9 Needed” and export. Use this report to send a reminder email to the individuals letting them know that they have a reward available to be paid once they submit their W-9.
If you have any further questions, please reach out to your Customer Success Manager or support@getambassador.com.