if it is over $600 and you are a US entity and cannot confirm that the other party is not a US entity then you need to withhold tax at some rate (30% i think?).
that's about it assuming you are not asking them to break any law in carrying out that bounty.
it's no different then paying in cash or any barter transaction
Oh, really? So when you take your car to the shop and the transmission is busted you withhold tax when paying for the repair?
I didn't think so. Pretty sure the only entities who are allowed to withhold tax are companies who sell items plus are certified/licensed to collect sales tax and companies who pay employees on payroll and are required to withhold taxes (and pay additional taxes) based on the amount of pay in the given year amongst other factors. If you are a contractor, your customers don't withhold taxes, but corporate customers do have to report on a form when they pay over something like $600 to any specific contractor. If individuals had to even report every time they paid over $600 for something, any individual who had an expensive car or house repair bill would be in violation of that law.
Also, a bit of trivia, while I don't know if it is still the case, at one point, FedEx didn't have its drivers on payroll and instead treated them as independent contractors. At that time, FedEx didn't withhold payroll taxes (or pay the additional payroll taxes), but instead only reported the total payments to their "individual contractors." This meant FedEx drivers had to pay double (or more with certain Bush-era tax breaks) the taxes other people on a payroll had to pay for a given tax.
ETA: In regards to reporting on a form, it may be a form 1099, but even if it's not, the reporting requirement is over $600 (or something) per year to one entity, not over $600 (or something) at once.
