A shopper either DOES or DOES NOT pay taxes on their income, whether it is by EIN or SSN. The company DOES claim what they pay to shoppers on THEIR tax return as an expense that is fully auditable by IRS. If a shopper chooses to not pay taxes on their income, it is fraudulent behavior, whether it is under an EIN or a SSN and subject to IRS action.
Under old IRS rules, a business is required to issue a 1099 for payments commissions, fees and other compensation in excess of $600. Reimbursements are not considered to be compensation. Under the rules starting in 2012, (from accountingweb.com)
"First Change: Payments to Corporations Must Be Reported. Starting in 2012, if your business pays a corporation $600 or more in a calendar year, you must report the total amount on an information return. Presumably, Form 1099-MISC will be used for this purpose, or the IRS will develop a new form. (Payments to corporations that are tax-exempt organizations will be exempt from this new requirement.)
Another burden: Your business must also obtain a TIN from each affected payee to avoid the requirement for backup withholding of federal income tax.
On the other side of the coin, if your business sells property or you operate a corporate business, you will have to supply customers with your TIN to avoid backup withholding on payments made to you.
Third Change: Payments of "Gross Proceeds" Must Be Reported. Here's where the new upcoming rules get more confusing. Under a third new rule that will take effect in 2012, payments of $600 or more in "gross proceeds" to a payee in a calendar year must be reported on an information return. At this point, it is unclear what this new reporting requirement is meant to cover. The best guess is that it is meant to cover payments made to non-corporate payees, such as restaurants and other small businesses. We are awaiting IRS clarification on this issue.
Action Plan
Dealing with the new Form 1099 reporting rules is going to be difficult for many organizations -- resulting in an avalanche of paperwork. Your business will likely have to modify its accounting procedures to capture payee information that will be needed to comply with the new requirements.
Remember: TINs must be obtained from your vendors to avoid having to institute backup federal income tax withholding on payments made to them. By the same token, your business must ensure that your customers have your TIN to avoid backup withholding on payments made to you.
What if backup withholding does occur on payments made to you? You must be prepared to track the withheld amounts so you can claim credit for them at tax return time. If your business winds up on either side of the backup withholding rules, it can be a real mess. And with lots more 1099s flying around, the odds of errors rise proportionately.
To compound the problems with the new reporting requirements, many businesses use accounting methods other than the cash basis. In addition, a number of businesses file their returns using reporting periods other than calendar years. In an audit, imagine your business and the IRS attempting to reconcile 1099s with these complications.
Fortunately, the new Form 1099 reporting rules (including any backup withholding implications) don't cover payments made before 2012. So there's still plenty of time to plan for what is likely to be a daunting taskā¦use it wisely!"
As an independent contractor I would be super cautious about setting up an EIN business because I would certainly hate to need to collect TINs from the restaurants and stores I shop and am reimbursed for on the chance that I pay them more than $600 in a calendar year and need to start issuing 1099s!
Of course a "valid TIN" is simply a valid Taxpayer Identification Number and that can be a SSN or an EIN.