IRS Issues New Requirements for Reporting Merchant Transactions
Posted by Britney Chan on Thu, Feb 02, 2012
As of Jan. 1, 2011, developed in accordance with the Housing and Economic Recovery Act of 2008, a new federal regulation was enforced to help the Internal Revenue Service (IRS) identify merchant card transactions that went unreported.
Now, certain Independent Sales Organizations (ISOs), acquiring banks, processors and third-party payment providers will be required to track and report merchants' gross credit card, debit card and third-party payment (alternative payment companies like PayPal) receipts before the deduction of chargebacks, returns and refunds. Exemptions may apply in certain circumstances, such as if the total payments settled for the year are less than $20,000.
The purpose of the law is to improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete. Under the proposed requirements, merchant service providers must report these card transactions to the IRS yearly via a 1099-K form for each merchant. This reporting applies to transactions beginning on January 1, 2011—the first information returns will be filed in January 2012 with the gross amounts of transactions from 2011. Merchants must report this income on their business tax returns.
The law also requires ISOs, acquiring banks, processors and third-party payment providers to verify the tax identification number (TIN) and legal name associated with that number for each merchant customer. It is important to note if there is a discrepancy between the merchant’s TIN and associated legal name in the acquirer’s records and the IRS records, or if the merchant does not provide its TIN, the IRS will require the processing company to withhold 28 percent of the merchant’s future payment card transactions until the issue is resolved. The “backup withholding” provision of the law goes into effect for transactions on and after January 1, 2012.
NTC Texas is an ISO and Elavon is a merchant acquiring entity. As a result of this new law, we are implementing procedures and system enhancements to prepare merchants for the impact of these requirements. Validating merchants' tax information against the IRS' TIN is the first initiative taking place.
New Elavon IRS Reporting Requirements Summary
- NTC Texas and Elavon will collect and verify your TIN and the legal business name and address for your merchant accounts.
- Beginning this 2011 tax year, NTC Texas and Elavon are responsible for reporting your gross total annual dollar amount of payment card transactions to the IRS in 2012.
- In 2012, NTC Texas and Elavon must file a Form 1099-K, an information return with the IRS and provide a copy to you for the 2011 tax year.
Please click here and choose your country to locate the forms you will require.
Contact Us for any questions about the new IRS reporting requirements, or for questions about filling out your forms.