Form 1099-K Overview

Be prepared. Understand the new reporting requirements of IRS Form 1099-K and how they apply to you.

1099-K Definitions | 1099-K FAQs | Sample Forms

The Housing and Economic Recovery Act of 2008 created a reporting requirement for banks and other payment settlement entities to report payment card and third-party network transactions for their participating merchants to the IRS. This reporting requirement is also known as Internal Revenue Code (IRC) Section 6050W (please refer to the IRS website for more information: www.IRS.gov).

The law requires banks and other payment settlement entities to report payment card and third-party network transactions with their participating merchants. The final regulations contain rules to implement reporting of credit card, debit card and similar transactions, as well as transactions settled through third-party payment networks, such as third-party organizations that settle online transactions.

Beginning in 2012 every payment processor filed 1099K forms with the IRS reporting the gross amount of each merchant’s card transactions for the 2011 year, as well as providing a corresponding statement to merchants.

Reporting entities are also required to collect and verify the tax identification number (TIN) along with the merchant’s legal name and address associated with the TIN number. If a merchant fails to provide its TIN or correct legal name or there is a discrepancy between the information the merchant provided to the reporting entity and the IRS’ records, the IRS requires the reporting entity to begin backup withholding of the merchant‘s future settlements amounts.

Visit the IRS website at www.IRS.gov for detailed information.  Then look to your payment processor for Form 1099-K Assistance.  We’re here to help.

The information contained in this summary is based on information available at the time of publication, which is subject to change. This information is provided as a convenience and is not intended to be or construed as legal advice. Because of the generality of this communication, the information provided herein may not be applicable in all situations, is not a comprehensive list of issues that could impact your business and should not be relied upon without specific legal advice from your legal, compliance and/or other subject matter expert. Your payment processor makes no representations or warranties as to the accuracy or completeness of this information and all such information is provided as a convenience only.

 

1099-K Definitions

The IRS requires banks and other payment settlement entities to file the first report for merchants' gross receipts in 2012 for the 2011 transactions and then every calendar year thereafter. A Form 1099-K containing the gross receipts data will be mailed to merchants by January 31st of the year following the year for which the return is required.

  • What is a Federal “TIN” or Tax Identification Number?

    A Federal “TIN” or Tax Identification Number is an identification number used by the IRS in the administration of tax laws. If you are a sole proprietor, your TIN is your Social Security Number (SSN). For other business types, your TIN is your  Employer Identification Number (EIN), also known as a federal tax identification number.

  • How is “Legal Name” defined?

    A merchant's "legal name" is  the name the merchant provided to the IRS filed on Form SS-4. This Legal Name should match what is on file with your payment processor.

  • What is the definition of a “payment card”?

    A payment card generally means a credit card, debit card, transit card, governmentally-issued electronic benefit transaction (EBT) card, or any other card which is accepted as payment by a network of persons unrelated to the issuer of the card and to the other merchants who accept the card as payment.

  • How is the “gross” amount defined?

    "Gross amount" is defined 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, or any other amounts.

  • What is a merchant acquiring entity?

    A "merchant acquiring entity" is defined as the bank or other organization contractually obligated to make payment to merchants in settlement of payment card transactions.

  • What is a “payment settlement entity”?

    A “payment settlement entity” is, in the case of a payment card transaction, a merchant acquiring entity; or, in the case of a third-party network transaction, the third party settlement organization.

  • What is a W8BEN Form?

    The Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, is the form a non-US merchant would provide to be excluded from certain US information reporting (e.g. Form 1099-K and/or backup withholding).

  • What is a W9 Form?

    The Form W-9, Request for Taxpayer Identification Number and Certification, is used by a U.S. person (including a resident alien), to provide your correct TIN to the person requesting it (the requester) and, when applicable, to certify that the TIN you are giving is correct (or you are waiting for a number to be issued), that you are not subject to backup withholding, or to claim exemption from backup withholding if you are a U.S. exempt payee.

  • What is an MCC?

    The Merchant Category Code (MCC) is a four-digit code used by the bankcard industry to classify a merchant's primary business. The MCC describes a merchant's product, service, or nature of business. In cases where a merchant is engaged in more than one type of business, the MCC will reflect the merchant's primary line of business.

1099-K FAQs

As your payment processor, we are ready to help with 1099-K Form Assistance. We will report your gross receipts for all electronic payment transactions to the IRS, and mail Form 1099-K to you by January 31st of the year following the year for which the return is required.

Please see below to help answer any questions that you may have.

  • Why is the IRS requiring this reporting of merchants?

    According to the IRS, this provision is designed to improve voluntary tax compliance by business taxpayers and assist the IRS in determining the tax returns are correct and accurate.

  • What does a merchant need to do in order to comply?

    As a merchant, you must ensure that your payment processor has the correct TIN and legal name on file. Accurate tax information matching your IRS tax records will help to prevent future IRS backup withholding on payment card and third-party network transaction “gross amount” receipts.

  • Do all merchants have to comply with these requirements?

    Yes, all merchants must comply with these requirements.

    Professionals in the payment industry requested that the IRS set a de minimus threshold, (more than 200 transactions aggregating more than $20,000 per calendar year for a given payee), for all payment card transactions in order to be required for reporting. Final IRS regulations did not adopt this recommendation for merchant acquiring entities or banks.

    (Business owners are encouraged to discuss with their individual tax professional.)

  • Why didn’t the IRS contact me directly?

    The IRS requirements are available throughout the payment processing industry and through various IRS publications. Taxpayers can find additional information on the IRS’ website at www.irs.gov or by consulting with their tax professional.

  • How do I find out what my legal name and TIN are?

    For Individuals or Sole Proprietors, the Legal Name is usually the business owner’s name as shown on income tax returns, with the Social Security Administration, and/or on the business owner’s Social Security card. 

    For all other Business Types, the Legal Name is the Business name the merchant provided to the IRS filed on Form SS-4. Business owners that are still unsure of the correct Business Legal Name or Tax Identification Number on file may contact the IRS and request Form 147C, which will confirm the taxpayer information recorded with the IRS.

  • What if my TIN or Legal Name is different than what the IRS has?

    In accordance with IRS guidelines, if the payment processor does not have a merchant's correct Federal Tax Identification Number and Legal Name (as reported to the IRS), the merchant is subject to backup withholding from any future payments made. The current federal withholding amount is 28%.

  • What happens if I refuse to provide my TIN or Legal Name?

    If we do not have your correct information, then an incorrect 1099-K will be filed with the IRS. Eventually, the IRS will require that all merchants with invalid tax records be subject to IRS mandated backup tax withholding. The current federal backup withholding amount is 28%, and we will be required to withhold such amount from your settlements and remit directly to the IRS beginning in 2013. We understand the impact that withholding funds can have on a business and want to help you avoid that IRS requirement.

  • Why is amount reported to 1099-K higher than my settled amount?

    The IRS requires that we report the gross amount. The gross amount is defined as the total dollar amount of aggregated transactions in which a payment card is accepted and processed as payment for each merchant. This gross amount is not adjusted for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

Related Forms

What can I expect the Form 1099-K to look like?  Below you can view official forms and instructions referenced in the new IRS Reporting Regulation and see a sample Form 1099-K. 

  • W-9

    Form

    The Form W-9, Request for Taxpayer Identification Number and Certification, is used by a U.S. person (including a resident alien), to provide your correct TIN to the person requesting it (the requester) and, when applicable, to certify that the TIN you are giving is correct (or you are waiting for a number to be issued), that you are not subject to backup withholding, or to claim exemption from backup withholding if you are a U.S. exempt payee.

    Download Sample

  • W-9

    Instructions for the Requester

    Use Form W-9 to request the taxpayer identification number (TIN) of a U.S. person (including a resident alien) and to request certain certifications and claims for exemption. (See Purpose of Form on Form W-9.) Withholding agents may require signed Forms W-9 from U.S. exempt recipients to overcome any presumptions of foreign status.

    Download Sample

  • 1099-K

    Form

    This form is provided for informational purposes only. Copy A appears in red, similar to the official IRS form. Do not file copy A. The official printed version of this IRS form is scannable, but the online version of it is not. A penalty may be imposed for filing forms that can’t be scanned. See part O in the current General Instructions for Certain Information Returns for more information about penalties.

    Download Sample

  • 1099-K

    Instructions

    A payment settlement entity (PSE) must file Form 1099-K, Merchant Card and Third Party Network Payments, for payments made in settlement of reportable payment transactions for each calendar year. A PSE makes a payment in settlement of a reportable payment transaction, that is, any payment card or third party network transaction, if the PSE submits the instruction to transfer funds to the account of the participating payee to settle the reportable payment transaction.

    Download Sample

  • W-8BEN

    Form

    The Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, is the form a non-US merchant would provide to be excluded from certain US information reporting (e.g. Form 1099-K and/or backup withholding).

    Download Sample

  • W-8BEN

    Instructions for the Requestor

    These instructions supplement the instructions for Form 
    W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.

    Download Sample