IRS Regulations Regarding Merchant Services

Jan 07, 2014
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A few years ago the IRS toyed with the idea of implementing another form for business owners to fill out, called 1099-K. 1099-K would be where merchants would report (and thus be taxed on) payment card fees.

Thankfully, they reconsidered. The IRS said it would not require merchants to merge the amount they list on Form 1120 and other business income tax returns concerning gross payment card sales with what their merchant acquirer or system reports to the IRS as card receipts on the new form, the 1099-K. The IRS had already given merchants a pass on such reconciliation for tax year 2011, but groups such as the National Federation of Independent Business, a small business organization, and the Retail Industry Leaders Association representing large retailers had sent letters urging the IRS to remove the requirement.

Controversial from the start, the 1099-K form originated with a section in a 2008 law that Congress passed in hopes of finding potentially $10 billion in underreported or unreported taxable profits by helping the IRS match income from sales paid with payment cards to income claimed on business tax returns. The rule implementing the law requires so-called payment settlement entities such as bankcard merchant acquirers or card networks such as American Express and Discover that have direct relationships with merchants to file annual reports for each merchant listing that merchant’s monthly gross receipts from electronic payment transactions. Acquirers must list the receipts, along with the merchant’s taxpayer identification number (TIN) and legal name, on the new 1099-K.

While this is not yet required of merchants, it is still something that every merchant should know about. It is also important to note that if your payment card transactions exceed $20,000, and your transactions exceed 200, then you will be sent a 1099-K by your merchant account provider that shows the amount of transactions that you processed for that year. If your transactions do not exceed 200, and your payment card sales do not exceed $20,000 you will be exempt.

In the end, all business owners need to be honest in reporting their taxes. When this new form in implemented, the few minutes it takes to fill out the form is better than the ongoing hassle of dealing with the IRS after you have tried to cheat on your taxes.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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