Has your credit card merchant services provider informed you about the new 1099-K regulations by IRS? As reported last quarter, the IRS is adding another step in the procedure of reporting taxes if you are in business.
All businesses that accept credit cards payments are mandated starting January 2012 to have their sales through credit cards reported by their merchant services provider or independent card payment network such as Discover card and American Express.
This new law aims to compare the total credit card sales information from your form 1099-K with the income reported on your tax returns.
Effects of 1099-K on Merchants and Credit Card Merchant Services Providers e Providers
The deadline for 1099-K submission is fast approaching, but the rules for its implementation are still unclear.
It is definite that your credit card merchant services provider is required by law to submit your credit card sales if you accept credit card payments on the 1099-K form.
However, there is one big factor that you should know. If the legal name and taxpayer identification number (TIN) on your credit card merchant account do not accurately match your information filed with the IRS, your merchant service provider is required by law to withhold twenty eight percent of your credit card payment transactions.
The withholding of 28% is difficult for most businesses. Therefore, it is imperative that you make sure that your merchant account is validated.
You must call your merchant account representative if you have not been notified through a phone call or on your statement if your account has been cleared or waiting clearance.
The big challenge for merchant processors is that it takes one to two weeks to get a report back from the IRS to find out if an account matches or not.
A simple inconsistency in symbols and spellings on your business information can cause discrepancy with the IRS’s computer system that will invalidate your account.
To avoid the 28% withholding, pay special attention to any data that you provide such as tax returns, business licenses and other business information, which can expedite the process for validation.
The good news is that credit card merchant services providers do not want to be responsible in forcing the withholding of funds and are doing all they can to make sure the accounts they handle are all validated for 1099-K before the set deadline.
1099-K Enforcement for Credit Card Merchant Services ProcessorsPostponed
Due to the incredible backlog of merchant accounts that need to be verified, the IRS was obligated to postpone the enforcement of the withholding penalty until January 2013.
However, all acquirers are still required to file the 1099-K reporting form at the end of this year.
Since the IRS will not disclose to your credit card merchant services provider what they have on file regarding your legal name and TIN due to privacy concerns, it is best that you as a merchant check diligently for notification from your merchant processor.
To reiterate, the important factor for business owners to take note concerning this new law is that the IRS is making the credit card merchant processors responsible for reporting all its clients’ credit card income and is using them to enforce the penalties.