By Jimi Barkway · Published 1 September 2026 · Part of the honest manual · Every fee on this page was checked against the provider's live pricing on the date shown beside it
The short version
Your affiliate program's hardest problem isn't tracking clicks. It's getting $37 to a designer in Manila without losing a slice of it to hidden exchange spreads or creating a tax mess in January. Before your first payout you want four things straight: who the payer of record is, what your rail really charges including the exchange-rate spread, which forms to collect before money moves, and why your minimum payout and hold period are trust decisions dressed as settings.
Guides about affiliate programs spend thousands of words on recruiting and one line on paying. Then the first payday arrives and you discover the paying part has fees, forms, currencies and law in it. This module is that missing part, written down. It's longer than the others because the mistakes here cost real money, and most of them are cheapest to avoid before the first payout, not after.
Who is actually paying your affiliates?
There are two ways affiliate money can move. Pick carefully. The difference decides most of what follows.
On a custodial model, you send a lump sum to a platform. The platform holds it. Then it hands it out to your affiliates. While it sits there it's in someone else's custody, the platform typically takes a percentage for the service, and every question about who reported what to which tax authority now has a middleman in it.
On a non-custodial model, the money goes straight from your account to each affiliate's. Software works out the amounts and instructs your payment rail, but the payment itself is yours, from you, and you are unambiguously the payer of record.
Payer of record isn't jargon to skim past. It's the answer to "whose name is on the payment, whose paperwork is it, and who does the affiliate chase when it goes wrong". You want that answer in the week you set the program up. The alternative is finding it out in January, form deadline looming, while you work out what a platform did or didn't file on your behalf.
Cards on the table. AffiliateRail is non-custodial, we never hold your money, and this module describes the world from that side of the line. The useful bit for you is that everything below, the rails, the forms, the arithmetic, applies whichever software you use. Money that stays yours until it lands in the affiliate's account is the simplest version of this problem, so that's the version this module teaches.
PayPal Payouts: what it really costs
PayPal's the default rail for a reason: nearly every affiliate on earth can open an account, and all you need from them is an email address.
The mechanics: upgrade to a PayPal Business account, ask PayPal to switch on Payouts (a review that takes a few business days, so do it before you have anyone to pay), and payments then go out from your PayPal balance. That balance is the catch people miss. Payouts draw on the balance only, not your linked bank account, so it needs topping up before each payday.
The fees, from PayPal's own US merchant fees page, checked 1 September 2026:
- Sending through the Payouts API from a US account costs a flat fee per payment: $0.25 for a payment in US dollars.
- Sending through the web interface instead costs 2% of each payment.
- A payment that crosses borders costs 2%, capped per currency, $20 for US dollars.
- And the one almost nobody says out loud: when PayPal converts the currency, the exchange rate includes a 4% conversion spread. Your affiliate in the Philippines loses that on top of any per-payment fee, and it never shows up as a line item anywhere. It's the single biggest hidden cost on this rail.
Fee schedules differ by the country your business account is registered in, so check your own account's fee page rather than trusting any article older than a few months. This one included.
Two behaviours worth knowing before they surprise you. If an affiliate's email has no PayPal account attached, the payment sits unclaimed for 30 days, PayPal invites them to open an account, and the money comes back to your balance if nobody claims it. And PayPal Payouts doesn't work in every country, so a program with partners everywhere eventually meets someone it can't pay this way. Which is where the second rail comes in.
Wise Business: the other automated rail
Wise pays into bank accounts rather than PayPal wallets: an IBAN, or an account and routing number for US dollars. That one difference matters. It makes Wise the better rail for affiliates who don't want a PayPal account, and for anyone in a country where PayPal's withdrawal fees sting.
Wise converts at the mid-market rate, the one you see on a currency chart, and charges its fee separately and visibly. Nothing hides in the rate.
The costs, from Wise's UK business pricing page, checked 1 September 2026: a one-off £50 to open the full business account, no monthly fee, and a transfer fee that varies by currency, from 0.24%. On a $100 payout that's measured in cents. Put it next to a 4% conversion spread and the comparison isn't close for international payments.
Setup takes longer than PayPal's. Expect that. Wise verifies your business before the account opens (allow one to three business days), you fund a balance in the currency you pay from, and API access comes through a token your software uses to prepare each transfer. One regulatory wrinkle for UK and EEA businesses: strong customer authentication means Wise asks you to approve each batch yourself unless you register a signing key. So "automated" there means "prepared and waiting for your one click", which for a monthly payday is honestly fine.
On either rail, your affiliates enter their own payout details in their portal, with the rail's own checks applied as they type. A mistyped account number becomes an error on their screen, not a failed payout three days later.
The CSV fallback is fine
If you have four affiliates, you don't need an API integration. You need a list: who, how much, which account. Export it, open your own PayPal or bank interface, pay each person, mark them paid. Twenty minutes a month. You also learn what your payout process actually involves before you hand it to a machine. Rails that only do bulk uploads, like Payoneer, work the same way: generate the batch file in the shape the rail expects and upload it once.
The moment to automate is when the twenty minutes becomes an hour, or when you catch yourself postponing payday because it's a chore. A postponed payday is the one operational failure affiliates never forgive. So the honest rule is: manual until it threatens the schedule, automated after.
The tax part nobody writes down
Before you read this section
What follows is general information about how the rules are commonly understood, not tax or legal advice, and your own situation is exactly what it can't see. The right time to talk to an accountant is before your first payout run, not at filing season. Where a specific decision matters below, we say so at that point.
Every guide to affiliate programs mentions paying people. Almost none mention that paying people comes with paperwork, because the honest version of this section is awkward to write when you sit between the merchant and the money. We don't. So here it is.
Collect the forms before the first payout, not after
If your business is in the US, or pays US persons, two forms matter. A W-9 is how a US person gives you their taxpayer identification. A W-8BEN (or W-8BEN-E for companies) is how a non-US person certifies they aren't one, and it expires after three calendar years. Diarise that. You re-collect it rather than filing it away forever.
Collect before you pay, because the timing does your enforcement for you. Before the first payout, the form is a checkbox in onboarding and everyone fills it in. Afterwards, it's a favour you're asking of someone who already has the money, and some will never respond. The US rules also provide for 24% backup withholding on payments where the payee's taxpayer identification is missing. Whether and how that applies to your payments is one for your adviser, but the existence of the rule is a good reason not to design a program where you find out.
In AffiliateRail this is a switch: turn on required tax forms and a partner sees the W-9 or W-8 flow in their portal, and their payouts stay ineligible until the form's in. We collect, store and export the forms; we never file anything, because the payments are yours, not ours.
The threshold that changed in 2026
For payments made in 2026, the reporting threshold for Form 1099-NEC is $2,000 in a calendar year. It was $600 for decades, the One Big Beautiful Bill Act raised it in July 2025, and from 2027 it's indexed to inflation, which means it now moves every year. Most articles you'll find still say $600. They're out of date. Check the current figure each January, or ask your accountant to. (Confirmed with our own tax adviser, 25 August 2026, and against the IRS guidance current on 1 September 2026.)
Two things a threshold doesn't mean. Income below it is still taxable to the person you paid; the threshold changes who must report, not what's owed. And the threshold belongs to a specific form. Which brings us to the part where this module deliberately stops short.
Which form? That depends on how the money moved
Here's the distinction that surprises almost everyone. What you might have to file depends less on how much you paid than on how you paid it. Payments made over a third-party settlement network, and PayPal is one, are generally reported by the processor itself on Form 1099-K. So a merchant who also reports the same payments can end up double-reporting them. Direct bank payments, ACH and wire, lean the other way, toward the merchant's own reporting on 1099-NEC. Wise sits near the line. Near enough that the honest answer is your adviser's read on your specific setup.
Notice what that means: an affiliate you paid half by PayPal and half by bank transfer is two different reporting questions inside the same person. So no, this module won't tell you which form to file. That is deliberate. The reason is practical: the answer genuinely depends on which rails you used, where you are, and facts about your business we can't see.
What software should do is put the deciding facts in one place. Ours does: the annual payout export lists who you paid, how much, and by which rail, one row per partner per payment method, with no "form" column. Your accountant classifies each row in minutes instead of reconstructing a year of payments in January.
Invoices and VAT, in plain words
Outside the US, the paperwork question is usually an invoice question. An affiliate commission is a payment for a service, marketing, that the affiliate supplied to you. And in most VAT systems a service between businesses is taxed where the customer belongs, which in this arrangement is where you are, not where the affiliate is.
For a UK or EU business paying an overseas affiliate, that usually lands on the reverse charge: the affiliate doesn't add their local VAT to the invoice, and you account for the VAT yourself on your own return, declaring it and reclaiming it in the same breath. For most VAT-registered businesses the two entries cancel out, so no money changes hands. The entries still have to exist. Which is why your bookkeeper wants to hear about your affiliate program before your first VAT return, not after. Below your country's registration threshold, different rules apply again. One more item for the accountant conversation this module keeps recommending.
Who writes the invoice? Formally the affiliate is the supplier, so formally it's theirs to issue. In practice? A hobbyist affiliate in another country has never issued a compliant invoice in their life. The practical answer is self-billing: with the affiliate's agreement, you generate the invoice on their behalf for each payout, they get a document for their records, and your books get a paper trail that actually exists. AffiliateRail generates these self-billed invoices for your affiliates on the Scale plan. Some countries put conditions on self-billing arrangements, the UK among them, so have your adviser bless the setup once and then let it run.
Minimums, holds and paydays
Three settings every platform asks for and no platform explains.
The minimum payout. The reflex is $50, borrowed from the ad networks of twenty years ago, and for a small SaaS program it's quietly lethal. Run it on your own numbers: 20% of a $29 subscription is $5.80 a month. Your newest affiliate refers one customer, and a $50 minimum makes them wait nine months for the first proof that your program pays real money. Most will decide it doesn't, and stop, long before month nine. A minimum exists to stop you paying out amounts smaller than the fee to send them. $20 does that job; it's our default, and on Wise, where sending $20 costs cents, you could defend even lower. Set the smallest number that doesn't embarrass anyone, then let the first payment do its real job: convincing the affiliate you're worth promoting properly.
The hold period. The gap between a commission being earned and becoming payable exists for one reason: refunds. Pay commissions the day of the sale, and when the customer refunds in week three you're clawing money back from a partner, which is the single most corrosive conversation an affiliate program produces. The clean rule: your hold should be at least your refund window. We default to 14 days. If you offer 30-day refunds, hold for 30, tell affiliates why in one sentence, and nobody minds. A transparent delay beats a clawback every time.
The schedule. NET-15 means commissions from one month are paid 15 days after the month ends, and some version of monthly-plus-a-buffer is the norm across the industry. The number matters less than its reliability. An affiliate treats your payday the way you treat a customer's invoice date: one missed or silently late payment and the relationship changes for good. Pick a schedule you can keep in your busiest month, automate it or diarise it, and treat it as immovable.
What a payout actually costs you
Now the arithmetic that decides your software bill. Platforms that hold your money charge for the holding. A common published structure in this category: 2% of every payout, plus fees to fund the platform wallet, $8 per invoice by bank transfer or 4% by card (figures from one such vendor's live pricing and help pages, checked 1 September 2026). Here's what that costs at three volumes, funding by bank transfer:
| You pay affiliates | 2% plus an $8 invoice takes | AffiliateRail takes |
|---|---|---|
| $2,000 a month | $48 a month | $0 |
| $10,000 a month | $208 a month | $0 |
| $50,000 a month | $1,008 a month | $0 |
Fund the same wallet by card at 4% and the middle row becomes $600 a month. Paying $10,000 a month to affiliates through a 2% custodial rail costs $2,496 a year before the card option, roughly a year of decent affiliate software, spent on moving money you already had.
To keep the comparison honest: on either model you pay the rail's own charges, PayPal's per-payment fee or Wise's 0.24%, because someone has to actually move the money. The percentage on top only exists when a platform stands in the middle of yours. That is the whole difference. We charge 0% of payouts on every plan, and we can only do that because the money never passes through us. There's nothing to take a cut of. That's the architecture, and it is why no plan of ours will ever grow a payout fee.
Common questions
How do I pay affiliates without a platform holding the money?
Connect your own PayPal Payouts or Wise Business account to software that works out who's owed what and instructs your rail with your credentials, or export a batch and pay from your own account by hand. Either way the money moves directly from your account to the affiliate's, and you stay the payer of record.
Do I need a tax form from an affiliate before I pay them?
Standard practice for a US business is a W-9 from US persons and a W-8BEN from everyone else, collected before the first payout while the form is still a routine onboarding step, because the US rules provide for 24% backup withholding when taxpayer identification is missing. Which information return you later file, if any, depends on how the money moved, so confirm the specifics with your accountant.
What is a sensible minimum payout for a small program?
Low. A 20% commission on a $29 subscription earns $5.80 a month, so a $50 minimum makes a one-referral affiliate wait most of a year to be paid at all. Around $20 filters out processing noise without teaching new affiliates that the program never pays.
That's the money module. If you haven't read module 0, the disqualifier, read it before you set any of this up: the best payout configuration in the world can't rescue a program that shouldn't exist yet. And once more, because it's the one sentence in this module that protects you: this page is general information, and the week before your first payout run is the right week to put your accountant on it.