What You Need to Know About the IRS’s New Reporting Requirements for Merchants
I remember back in October of 2009, a friend of mine who had recently opened a business of his own, asked me; "How does the IRS know how much I process in credit card transactions?" My short answer was; "They don't." The long answer is, that the IRS doesn't keep track of credit card transactions the way they do, say independent contractor income (1099), but that's all about to change.
While most of us were prepping for the holidays, the IRS was quietly passing a new regulation that may affect you as a merchant.
As part of section 6050W of the Housing Assistance Tax Act of 2008, gross transaction amounts of payment card and third-party network transactions must be filed with the IRS by banks and other merchant service providers.
Under new section 6050W, any payment settlement entity making payment to a participating payee in settlement of reportable payment transactions must make a return for each calendar year to be filed with the Service, and furnish a statement to the participating payee, setting forth the gross amount of such reportable payment transactions, as well as the name, address, and taxpayer identification number (TIN) of the participating payees.
The system will work almost exactly like 1099 reporting for independent contractors, as a matter of fact, the form that the IRS has drafted up for reporting is called form 1099-K.
What does this mean to you?
It means that starting in 2011, if your credit card sales exceed $20,000, and your transactions exceed 200, then you'll be sent a 1099-K by your merchant account provider that shows the gross amount of transactions that you processed for that year. That's about it! So long as you're honest on your tax returns, you have nothing to worry about.
And remember, anyone with less than $20,000 in credit card sales, and less than 200 transactions will not receive a 1099-K.
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October 14th, 2011 - 13:23
Paypal told us about this over a year ago and only today did we receive an email telling us that they are sending us a letter about the IRS new reporting. It was very ominous sounding that we may have to have funds withheld. If this is about the 1099k it would work the same way as all 1099s – you pay your quarterly taxes based on prior year then you will owe more in April most likely. We do have reconcile all refunds and shipping because it will be the gross but we have all known about this for over a year due to Paypal alerting us and requesting tax id updates and social security numbers.