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 the 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 number 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 is 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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