If you run an affiliate program on Shopify and pay US-based affiliates, the IRS considers those payments non-employee compensation. That means you're responsible for reporting them.
The rule is straightforward. Any US-based affiliate who receives $600 or more in total payments during a calendar year must receive a 1099 form from you. Doesn't matter if they're a full-time content creator or someone who posted one link that happened to convert well. Hit $600, file the form.
Below $600? You're not required to file. But the affiliate is still technically required to report that income on their taxes. Your obligation just doesn't kick in until the threshold.
One thing merchants get wrong: the $600 threshold is per affiliate, per year. Not per month. Not per transaction. If someone earned $200 in March, $150 in July, and $300 in November, that's $650. They need a 1099.
Short answer: 1099-NEC. Almost always.
The IRS brought back the 1099-NEC (Non-Employee Compensation) in 2020 specifically for payments like affiliate commissions, freelancer fees, and contractor payouts. Before that, everyone used 1099-MISC Box 7. Not anymore.
Use the 1099-NEC when you're paying affiliates for services -- promoting your products, driving sales, creating content about your brand. That covers virtually every affiliate relationship.
The 1099-MISC still exists, but it's for things like rent payments, prizes, and royalties. Unless your affiliate agreement is structured in an unusual way -- say, licensing their content rather than paying commissions -- you won't need it.
When in doubt, the IRS provides clear guidance on Form 1099-NEC and when it applies.
A W-9 gives you the affiliate's legal name, address, and Taxpayer Identification Number (TIN) -- either their Social Security Number or Employer Identification Number. You need this information to fill out the 1099.
The biggest mistake? Waiting until tax season to ask for it.
Collect the W-9 during affiliate onboarding, before you issue the first payment. Make it part of the signup flow. This is standard practice for any business paying independent contractors, and affiliates are exactly that in the eyes of the IRS.
They can refuse. But you have options -- and obligations.
If a US-based affiliate won't provide a W-9, the IRS requires you to begin backup withholding at 24% on their payments. You send that withheld amount to the IRS. The affiliate gets 76 cents on the dollar until they hand over the form.
Most affiliates comply quickly once they understand the alternative.
W-9 forms contain sensitive information. SSNs, EINs, home addresses. Treat them accordingly.
Mark this on your calendar: January 31.
That's the deadline for both sending 1099-NEC forms to your affiliates and filing copies with the IRS. Unlike some other tax forms, there's no automatic extension for the 1099-NEC. January 31 is January 31.
If you file electronically (which the IRS now requires for businesses filing 10 or more information returns), the same January 31 deadline applies.
Penalties scale based on how late you file. For the 2025 tax year (filed in January 2026), the penalty structure from the IRS penalty guidelines looks like this:
These are per form. Run an affiliate program with 50 qualifying affiliates and miss the deadline entirely? That's $15,500 in penalties. For a small Shopify merchant, that's real money.
Small businesses (average annual gross receipts of $5 million or less) get lower maximum caps, but the per-form penalties still apply. Consult a tax professional for the exact caps that apply to your situation.
Good news first: you don't need to file a 1099 for affiliates outside the United States. The 1099 is a domestic reporting requirement.
But "no 1099" doesn't mean "no paperwork."
For international affiliates, you should collect a W-8BEN (for individuals) or W-8BEN-E (for entities). This form certifies their foreign status and determines whether you need to withhold US taxes from their payments.
The default withholding rate for payments to foreign persons is 30%. However, many countries have tax treaties with the US that reduce or eliminate this withholding. The W-8BEN is how you document the affiliate's eligibility for a reduced rate.
Without a W-8BEN on file, you're technically required to withhold 30%. Most merchants with small international affiliate programs skip this entirely -- but that doesn't mean the obligation isn't there.
If you have a handful of international affiliates earning modest commissions, the practical risk is low. The IRS focuses enforcement on large-scale payment processors and companies making substantial foreign payments.
If you're paying international affiliates significant amounts -- thousands per year -- get a W-8BEN on file and talk to a tax professional about your withholding obligations. This is one area where getting it right matters more than getting it fast.
The actual pain of 1099 filing comes from bad record-keeping throughout the year. If you're scrambling to pull together payout totals in January, you've already lost.
Your affiliate platform should handle this tracking automatically. ReferralCandy, for instance, maintains a complete record of every commission paid to every affiliate, with exportable reports you can hand directly to your accountant. Their documentation on 1099s and tax reporting also clarifies which forms apply depending on your payout method -- useful reading before tax season.
At minimum, your platform should give you a clear record of every commission paid to every affiliate. At minimum, you need:
Export this data quarterly. Don't wait until December to discover that your records are incomplete or that you've been paying someone under a username instead of their legal name.
If you use QuickBooks, Xero, or a similar accounting platform, sync your affiliate payouts there. Most accounting tools can generate 1099s directly from your payment records -- or at least make it simple for your accountant to do so.
The connection matters more than the specific tool. What kills merchants is having affiliate payments tracked in one place, sales in another, and no bridge between them.
The IRS now requires electronic filing for businesses submitting 10 or more information returns (including 1099s, W-2s, and other forms combined). You can e-file through the IRIS portal for free, or use a paid service like Tax1099 or your accounting software's built-in filing feature.
E-filing is faster, generates fewer errors, and gives you a confirmation receipt. Even if you're filing fewer than 10 forms, it's the better option.
Most small Shopify merchants won't get audited over affiliate 1099s specifically. But these mistakes create problems -- sometimes expensive ones.
Mismatching TINs. If the name and TIN on your 1099 don't match what the IRS has on file for that affiliate, you'll get a B-notice (a formal letter asking you to correct it). Ignore it and penalties follow. This is why collecting accurate W-9s upfront matters.
Treating affiliates as employees. Affiliates are independent contractors. If you issue a W-2 instead of a 1099, or if the IRS decides your "affiliates" are actually employees based on how much control you exercise over their work, you'll face back taxes, penalties, and interest. Keep the relationship clearly contractor-based.
Forgetting PayPal and third-party payments. If you pay affiliates through PayPal, Stripe, or another third-party payment network, those platforms may issue their own 1099-K to the affiliate. This doesn't automatically remove your obligation to file a 1099-NEC. The rules here are nuanced -- if the payment goes through a third-party settlement organization, the 1099-K may apply instead. Consult a tax professional if you're unsure whether your payment method shifts the reporting responsibility.
Not filing because the amount seems small. $600 isn't a lot of money. But the IRS doesn't care about your opinion of the amount. The threshold is the threshold. Skip a filing and the affiliate reports the income on their return, the IRS cross-references, and you get a letter. Not worth it.
Missing the January 31 deadline and assuming it doesn't matter. It matters. The penalties are automatic. File on time or file a little late at $60 per form. Don't file at all and it's $310 per form. The math is not in your favor.
Tax compliance sounds complex, but the actual workload is manageable if you spread it out.
That's it. No surprises. No January panic. Just consistent record-keeping and one filing deadline per year.
No. The IRS only requires you to file a 1099-NEC for affiliates who received $600 or more in total payments during the calendar year. Below that threshold, you have no filing obligation -- though the affiliate should still report the income on their own return.
You're required to begin backup withholding at 24% on all payments to that affiliate and remit the withheld amount to the IRS. Most affiliates provide the W-9 once they realize their commissions will be reduced by nearly a quarter.
No. The 1099 is a US domestic requirement. However, you should collect a W-8BEN from international affiliates to document their foreign status. Without it, you may be required to withhold 30% of their payments for US taxes.
Use the 1099-NEC. The IRS reintroduced this form in 2020 specifically for non-employee compensation, which includes affiliate commissions. The 1099-MISC is for other payment types like rent and royalties.
You can, but you'll face penalties. Filing within 30 days late costs $60 per form. After that, it increases to $130 per form, and past August 1 it jumps to $310 per form. There's no automatic extension for the 1099-NEC deadline.
It depends on how the payment is structured. Third-party payment networks like PayPal may issue a 1099-K to the affiliate, which could shift the reporting obligation. The rules vary based on the payment method and amounts. This is one area where consulting a tax professional is strongly recommended to avoid double-reporting or missed reporting.
Raúl Galera is the Growth Lead at ReferralCandy, where they’ve helped 30,000+ eCommerce brands drive sales through referrals and word-of-mouth marketing. Over the past 8+ years, Raúl has worked hands-on with DTC merchants of all sizes (from scrappy Shopify startups to household names) helping them turn happy customers into revenue-driving advocates. Raúl’s been featured on dozens of top eCommerce podcasts, contributed to leading industry publications, and regularly speaks about customer acquisition, retention, and brand growth at industry events.
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