Tax Compliance Has Entered the Spotlight

Sovos IDC Infobrief for Tech Gig and MLM organizations on 1099 Reporting & Withholding Management

IDC Infobrief

Tax Compliance Has Entered the Spotlight

Gig economies, multi-level marketing organizations, and multinational corporations are some of the fastest growing areas that are receiving increased focus on tax reporting, withholding, and compliance. This report created by IDC explains why tax agencies are focusing on these specific organizational models, how to comply with evolving tax regulations, and the top solution providers for your organization to partner with to ensure compliance.

As businesses rapidly continue to change, so do their go-to market strategies. This makes tax compliance more difficult for both companies and tax authorities. 

This infobrief will cover the following areas:

  • Tax compliance market drivers
  • The growing tax gap
  • How regulators are playing catch up
  • The COVID-19 pandemic’s impact on tax compliance
  • External and internal adoption drivers
  • What to look for in a tax reporting and withholding solution

Get the infobrief

Why the increased focus on tech, gig, and direct seller organizations?

The growth of non-traditional workers continues to increase. This market is being driven by multiple factors including, the need to fill critical talent gaps, a lower cost of labor, the need for project help or acceleration, and the ability to access talent from anywhere in the world.

These non-traditional workers typically fall into one of three categories; gig workers, independent contractors, and statutory employees. There are currently about 1.6M gig workers, independent contractors have increased 30% from 2005 to 2015 and there are over 6M direct sellers, or statutory employees in the U.S. The number of non-traditional workers is on the rise, and shows no sign of slowing.

As the economy works to recover from the pandemic induced recession, regulators are focusing heavily on this segment to close the tax gap—which is now over $1B. The increase in non-traditional and contract workers has also contributed to the increased scrutiny on tax forms like 1099-K for third party online transactions and 1099-NEC for non-employee compensation.

The tax gap, backup withholding and compliance

Regulators are focusing on backup withholding to help close the tax gap, meaning organizations need to prioritize having compliant and proactive processes around non-traditional worker onboarding and validation.

To prepare for this, organizations need to internally assess their risk level, have proper training in place, and invest in proper infrastructure. Tax reporting and withholding software can help take out the risk of guessing and trying to keep up with changing regulations and deadlines.