Form 1099-K Overview

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.

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.

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.

"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.

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.

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.

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).

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.

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.

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.

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.

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.)

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.

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.

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%.

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.

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.