The Housing and Economic Recovery Act of 2008 (HERA) is a federal law that includes a new requirement that credit card processing companies report the gross amounts of their merchants’ payment card transactions to the Internal Revenue Service. The new payment card transaction reporting is intended by Congress to help the IRS identify under-reported sales.

 

At the end of each year, the credit card processing company will file an information return with the IRS reporting the gross amount of the merchant’s transactions to the IRS. A corresponding written statement (1099-K) will be mailed to the merchant. This reporting applies to transactions occurring within each calendar year beginning on January 1, 2011—the first information returns will be filed in January 2012 with the gross amounts of transactions from 2011.

 

In support of information reporting, the law also requires the credit card processing company to collect and verify the tax identification number (TIN) and legal name associated with that number for each merchant customer. If there is a discrepancy between the merchant’s TIN and associated legal name in the credit card processing company’s records and the IRS records, or if the merchant does not provide its TIN, the IRS will require the processing company to withhold 28 percent of the merchant’s future payment card transactions until the issue is resolved. The“backup withholding” provision of the law goes into effect for transactions on and after January 1, 2013.

 

To ensure that information is reported accurately, and to avoid backup withholding of merchant deposits, merchant tax information in our files is being compared with IRS records using the IRS’ TIN Matching secure application. If the information you provided on your Merchant Services application does not result in a match to the IRS website, you will be contacted and asked to submit a completed W9.

 

Please review the FAQs regarding IRS Reporting Requirements at your convenience.

Merchants should contact a legal or professional advisor to understand the impact these tax provisions have on their business. Information herein does not constitute tax, legal, or other professional advice and must not be used as such.

 

Q: What is Form 1099-K?

A: Form 1099-K is the information return the IRS has developed for compliance with IRCSection 6050W. This form reports the gross dollar amount of payment card transactions settled for a participating merchant during the prior calendar year. In addition, the form will reflect the merchant’s legal name and Taxpayer Identification Number (TIN). Forms 1099-K will be furnished to merchants every January, and filed by merchant acquiring entities with the IRS in March.

 

Q: What information does Form 1099-K include?

A: In addition to listing a merchant’s legal name and Taxpayer Identification Number (TIN), the Form 1099-K reports the annual gross dollar amount of payment card transactions settled for a participating merchant during the prior calendar year, by month.

 

Q: When is Form 1099-K sent to merchants?

A: The IRS requires that Forms 1099-K be mailed to merchants no later than January 31 of each year reporting the annual gross dollar amount of payment card transactions settled for a participating merchant during the prior calendar year. Merchant acquiring entities must also file copies of the Forms 1099-K furnished to merchants with the IRS approximately two months later.

 

Q: Does Form 1099-K report a merchant’s submissions amount or settlement amount?

A: The amount reported on Form 1099-K is the merchant’s total submissions, not the settlement amount. The report shows the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, chargebacks or any other amounts.

 

Q:If I have or had multiple accounts and businesses, will I get a separate 1099-K for each account or business?

A: The 1099-K is based on the TIN. So if the businesses were listed under the same TIN, only one 1099-K is furnished. The gross sales will be listed monthly but will include all accounts under that TIN. You will need to work with your tax advisor on how to file based on individual businesses under that same TIN.

 

Q: The gross amounts appearing on my 1099-K do not match by monthly statements. Why is the information different?

A: The amount reported will not match your monthly billing statements nor the deposits you receive from your bank since the reported amounts, in accordance with the IRS regulation, are based on the transaction authorization dates and the gross amount of the transactions. Your billing statements are based on the posting date of transactions and include returns, chargebacks and other information or adjustments that do not get reported to the IRS.

 

Q: Since the amounts reported on my 1099-K do not match my statements, can you supply me with a breakdown of the transactions?

A: Unfortunately we cannot. The amount reported on your 1099-K is a cumulative amount over the course of the year. Your batch reports from your POS device would provide you with this information.

 

Q: What steps should a merchant take with regard to IRC Section 6050W and Form 1099-K?

A: To ensure accurate reporting and avoid potential backup withholding, a merchant should verify that its correct legal name and Taxpayer Identification Number (TIN) are on file with us. Merchants should contact a tax, legal or professional advisor to understand the impact of Form 1099-K reporting on their business. Information herein does not constitute tax, legal or other professional advice and must not be used as such.

 

Q: What happens if a merchant does not supply a Taxpayer Identification Number (TIN) to us?

A: We will not accept an application that is missing a TIN.

 

Q: What happens if a merchant’s legal name and Taxpayer Identification Number (TIN) on file with you does not match their legal name and Taxpayer Identification Number (TIN) on file with the IRS?

A: If a merchant’s legal name and Taxpayer Identification Number (TIN) on file with us and reported on a Form 1099-K does not match what the IRS has on file (typically from a Form SS-4, Application for Employer Identification Number), the IRS will issue us a B Notice at some future date. Upon receipt of a B Notice, we will follow IRS B Notice procedures and attempt to correct the name and TIN on file by contacting the merchant. If the merchant does not respond timely with the necessary information, the IRS rules require us to impose backup withholding at a rate of 28% on all future gross payment card transaction amounts owed to the merchant. As required by law, all monies withheld will be promptly remitted to

the IRS. This will go into effect January 1 2013.

 

Q: What is section 6050W of the Internal Revenue Code?

A: Section 6050W was added by section 3091 of the Housing Assistance Tax Act of 2008 and requires information returns to be made by certain payors with respect to payments made in settlement of payment card (merchant card) transactions and third party payment network transactions.

 

Q: Will you keep any portion of the tax backup withheld from a merchant?

A: No. We will not keep any of the backup withholding tax withheld from a merchant.  All backup withholding taxes will be promptly remitted to the IRS as required by law.

 

Q: How is gross amount defined in IRC Section 6050W?

A: IRC Section 6050W defines gross amount as the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees refunded amounts, chargebacks or any other amounts.

 

Q: What are your responsibilities under IRC Section 6050W?

A: We are required to comply with IRC Section 6050W including:

• Collecting each merchant payee’s legal name and Taxpayer Identification Number (TIN).
• Furnishing a Form 1099-K to each of its merchant payees reporting the total annual gross dollar amount of payment card transactions settled for each merchant during the preceding calendar year every January, and filing a copy of the information return with the IRS every March.
• Withholding, on behalf of the IRS, 28% of gross dollar payment card transactions settled for any merchant who fails to furnish its TIN to us or for whom the IRS notifies us on a B Notice that the merchant’s legal name and Taxpayer Identification Number (TIN) reported on a Form 1099-K do not match according to the IRS’s records, if the merchant does not provide additional information to us promptly.
• As required by law, remitting all monies withheld to the IRS promptly.

Q: How is a merchant acquiring entity defined in IRC Section 6050W?

A: IRC Section 6050W defines a merchant acquiring entity as the bank or other organization contractually obligated to make payment to merchants in settlement of payment card transactions.

 

Q: What is a Federal Taxpayer Identification Number (TIN)?

A: A Federal Taxpayer Identification Number (TIN) is an identification number used by the IRS in the administration of federal tax laws. In most cases a TIN is either a social security number (SSN) or employer identification number (EIN).

 

Q: How is legal name defined?

A: A merchant’s legal name is typically the name the merchant provided to the IRS when it filed a Form SS-4, Application for Employer Identification Number, and that it uses to file its federal tax returns.

 

Q: How is legal status defined?

A: Legal status describes how a merchant’s business is classified for federal tax purposes.  For example, partnership, corporation, or sole proprietorship.

 

Q: What is backup withholding?

A: Backup withholding is a specific percentage (28%) of tax that payers must withhold from a payee and remit to the IRS in certain situations on most kinds of payments reportable on a Form 1099. Backup withholding on payments reportable on Forms 1099-K may be required if a merchant’s TIN is missing, or if the payer receives an IRS B Notice due to an incorrect merchant legal name/TIN combination on a filed Form 1099-K. A merchant can claim a credit on their income tax return for any tax withheld from payments due to them.

 

Q: What is an IRS B Notice?

A: An IRS B Notice is a notice that the IRS will send to each merchant acquiring entity and payment company for every Form 1099-K filed that has an incorrect legal name/TIN combination. The merchant acquiring entity will have 30 days to solicit and obtain a new Form W-9 from the merchant with their legal name and TIN. If the merchant does not timely provide the requested information, the IRS requires each payment company to impose backup withholding at a rate of 28% on future amounts settled for the merchant. As required by law, all monies withheld will be promptly remitted to the IRS.

 

Q: What is an IRS Form W-8?

A: An IRS Form W-8, Certificate of Foreign Status, is the form a non-US merchant with a foreign address must furnish in order to be excluded from certain US information reporting, including Form 1099-K and backup withholding.

 

Q: Do franchise merchants receive Forms 1099-K?

A: If the franchisee is a participating payee of the merchant acquiring entity, it will receive a Form 1099-K from the merchant acquiring entity. If a franchisee’s payment card transactions are processed through another company, that company may be required to issue Forms 1099-K to the franchisee.

 

Q: Are non-profits and other tax-exempt businesses subject to IRC Section 6050W and Form

1099-K reporting?

A: All US-based businesses, including non-profits and other tax-exempt businesses, are subject to IRC Section 6050W and the resulting Form 1099-K reporting and, as such, the information they have on file with us should be verified. However, they may not be subject to backup withholding.

 

Q: If a US merchant has locations in both the US and in Canada, will Forms 1099-K furnished to them report both US and Canadian payment card transactions or will they be reported separately?

A: Under IRC 6050W, merchant acquiring entities must report the total amount of payment card transactions settled for a US merchant, regardless of where the transaction was settled.

 

Q: Is a business based in Puerto Rico, US Virgin Islands, Guam, and/or other US territories subject to IRC Section 6050W and the resulting Form 1099-K reporting?

A: Only if the business has a physical address within the 50 states or the District of Columbia is it subject to IRC Section 6050W and the resulting Form 1099-K reporting.

 

Q: Are there any minimum thresholds to receive a 1099 K Form?

A: No. Any merchant where we settle at least one payment card transaction during a calendar year will receive a 1099 K form from us.

 

Q: What assistance will you provide for my tax return?

A: Although we are committed to helping you understand this new tax law, we are not qualified to assist you with specific tax guidance. Please contact a tax professional or the IRS.

 

Q: What are payment settlement entities?

A: In merchant payment card transactions, a payment settlement entity is a domestic or foreign entity that is a merchant acquiring entity.

 

Q: What is a merchant acquiring entity?

A: Often called an "acquiring" or "merchant" bank, a merchant acquiring entity is the bank or other organization that has the contractual obligation to pay the participating merchant/payee in settlement of payment card transactions. Under Treasury regulations section 1.6050W-1, a merchant acquiring entity makes payment in settlement of a payment card transaction if it submits the instruction to transfer funds to the account of the payee.

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