The businesses likely to experience the biggest problems are those that accept debit cards for payment and allow for cash back, explains Reibman.
Towson, MD (PRWEB) February 21, 2013
As if keeping track of business expenses for IRS purposes wasn’t difficult enough, USB Payment Processing’s Marc Reibman warns that businesses should prepare for a new potential new headache: IRS Form 1099-K. Starting with the 2011 tax year, Reibman explains, businesses that accept credit cards — both online and store front — will have to include its figures in their federal filings.
“Form 1099-K is meant to help the IRS determine whether retailers are reporting the correct sales figures on their tax returns,” Reibman says. “The burden lies on the credit card and payment processing companies to file the document, but it’s a business’s responsibility to make sure sales records match what your Form 1099-K says you sold.”
Reibman explains that businesses that didn’t process $20,000 or more in credit card sales and at least 200 transactions in 2011 are exempt. However, businesses that clear both thresholds will have to fill out a 1099-K.
“The $20,000/200 transaction minimum applies to total number of credit-card transactions. For example, let’s say your store used a credit-card processing machine for $10,000 in sales — and you also sold $5,000 in goods on eBay and $5,000 on Etsy,” says Reibman. “If you completed 200 or more total transactions in 2011, you are required to have Form 1099-Ks from each of these three parties. So, it’s a good idea to scrutinize every Form 1099-K that you receive to make sure that the payment middlemen didn’t make any errors.”
The businesses likely to experience the biggest problems are those that accept debit cards for payment and allow for cash back, explains Reibman. They will need to accurately keep track of the cash back provided to their customers, so it can be subtracted from their gross receipts. This way, the IRS will be able to reconcile their actual sales and revenue.
New IRS regulations — known as Section 6050W and enacted as part of the Housing and Economic Recovery Act of 2008 — have gone into effect and significantly impact the payment card industry. As a merchant, you should understand how Section 6050W affects you and your business.
Report Transactions to IRS
Under Section 6050W, all payment settlement entities — including merchant services providers and financial institutions — are required to report their merchants’ annual gross payment card transactions processed by credit, debit or co-branded cards and third-party network transactions (flexible spending accounts, for example) to the IRS on newly-created 1099-K forms; each merchant will receive a copy of the form. The IRS to verify financial data it receives from other sources will use this information, which is accumulated monthly.
Form 1099-K will be sent to merchants on or before Jan. 31, 2013, for activity in 2012.
Compliance with 6050W
To comply with this new regulation, payment settlement entities need to have up-to-date records of their merchants’ legal business names, addresses and taxpayer identification numbers (typically the EIN). This information must match the merchants’ filed tax forms in order to be valid. Expect your payment processor to ask you to provide a Form W-9 with this information.
Merchants who fail to provide their taxpayer ID numbe r could be hit with a backup-withholding equal to 28% of their gross payment card transactions.
“Now that the first reporting period has begun, merchants should be proactive when it comes to compliance — especially since the financial consequences of non-compliance could be steep,” says Reibman.
Merchants should start by reviewing their bookkeeping and accounting practices, he added.
“One area of concern that you as a merchant should be aware of is that while the new law requires payment settlement entities to report merchants’ gross payment card transactions, Form 1099-K may not directly reconcile to the monthly processing statements, said Reibman. “The statements reports are “net,” while Form 1099-K reports gross for IRS accounting purposes. Therefore, chargebacks, refunds and credits will be included in the reported amount. Additionally, cash-back transactions will also be included in a merchant’s gross amount. If merchants have additional questions regarding this new regulation and how it may impact them and their business, they should seek advice from a tax professional.”
About USB Payment Processing
Whatever you do, wherever you work, USB Payment Processing has a wide range of innovative products and credit card services to help your business prosper. We offer business solutions to help you save money, save time, increase profits, attract new customers, increase loyalty, and simplify your business operations. For more information, visit us on the web at http://www.usbne.com.