By Michael Wall, KOS Manager mwall@koscpa.com
Over the last few years there have been a number of pieces of legislation passed by Congress that affect small business and will be implemented in the future. The Housing and Economic Recovery Act of 2008 contains many provisions that affect tax years 2012 and beyond. Section 3091 of the Housing and Economic Recovery Act of 2008 requires third party payment processors (i.e. credit card companies, banks, etc.) report customer transaction amounts to the IRS using form 1099-K. This reporting requirement began on January 1, 2011 and the 1099-K report should be issued in January 2012.
The law requires that the third party processor report this information to you and the IRS. Unlike other 1099 forms, the 1099-K will not report the amount of transactions processed annually, but will break down payments on a monthly basis. The Form 1099-K will be issued to taxpayers in January 2012 and filed with the IRS before February 2012.
The IRS will be issuing redesigned income tax forms for 2011 for sole proprietors, partnerships and corporations which will show the amounts received to include a line for “Merchant card and third-party payments received” under the income section of the returns. In addition there will be some language relating to cash back taken from debit cards, so that taxpayers can appropriately show the total of the amounts received that should be excluded from income.
Payment processors have already started sending out form W-9’s for each of their customers which will request a confirmation of the name of the organization, current mailing address and most importantly the Taxpayer Identification Number (TIN) of each reporting entity. Payment processors will be required to obtain this information or follow an IRS requirement to withhold 28% of future settlements. When you receive this W-9, please fill out and send back to your processor by the date specified on the request.
Please do not hesitate to contact KOS if you have any questions about the Form W-9 issued by the payment processors or any other correspondence you receive regarding 1099-K.