In an effort by the IRS to increase compliance by businesses reporting gross receipts, a new Form 1099-K has been introduced. Starting with the 2012 calendar year, this new form will require merchant service providers (those that facilitate the acceptance of credit cards) to report to the IRS the amount of gross receipts received from third party payers who collect and remit proceeds for your sales.
Businesses that will see their income reported are those with more than 200 credit card transactions and more than $20,000 gross income from credit card sales. While the threshold for reporting will not require reporting on all businesses, don’t be surprised if merchant services providers file Form 1099-K for those who fall below the threshold.
Beginning in 2013, the IRS regulations indicate that there will be a 28% backup withholding when an Employer Identification Number (EIN) or Social Security Number (SSN) has not been provided to the merchant service provider or third party payer. This means that merchant services provider will withhold 28% of the amount owed to your business from the credit card settlement. This withholding applies to any vendor with at least 200 transactions at any level of gross income. If you have not already done so, you may want to contact your merchant card and third party processers to verify they already have your EIN or SSN on file to avoid a surprise withholding in 2013.
Businesses should also consider making adjustments to their bookkeeping in light of these new reporting rules. The IRS will now require that all the proceeds that have been handled by a third party payer to be separately stated from other monetary payments on the 2012 tax return. Segregating credit card receipts from income received by cash or checks will help you reconcile total gross receipts at year-end with the amount reported on Form 1099-K.
Pursuant to IRS Circular 230, the Internal Revenue Service requires us to inform you that any tax advice included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by the IRS on the taxpayer. That said, please do not hesitate to contact us if you have any further questions regarding this matter.Tags: Form 1099