I get a newsletter from Anderson Business Advisors each month. Easy
to understand tips.
This month they reveal that the IRS in 2011 is requiring the credit
card companies, like American Express; Visa; MasterCard an the others
to report to the IRS how much money YOU TOOK IN using the credit card
machine terminals in your store. Using a formula they can figure out
how much should be cash.
You will be required to give your credit card processor a Fed ID
number (most folks have done that upon signup) so the IRS can match
payments to companies.
if the credit card processor doesn’t have your info they could be
required to withhold 28% of your credit card receipts and give to
uncle Sam. That would be sued as a credit at year end. So look for
any mailings from your credit card processors asking you to complete
any info, you should do it.
The Anderson article is below. You can sign up for their articles,
free, at: http://www.alglaw.com
Is Your Business Ready for 2011 Credit Card Income Reporting?
Beginning for sales made in 2011, payment settlement entities (e.g.,
merchant card processing companies like American Express, Visa and
MasterCard merchant banks) will be required to report each
business’s payment transactions to the IRS.
To facilitate this reporting, the IRS has developed Form 1099-K
which will report a merchant’s credit and debit card income for the
year and will be issued to the merchant in the early part of the
subsequent year (just like 1099s for interest, dividends, pensions,
etc.). Unlike other 1099 forms, the 1099-K will actually break the
income down by the month. The first 1099-Ks will be issued in early
Individuals and merchants with Internet sales (e.g., eBay and their
online sales) that utilize an internet payment system such as PayPal
can expect to see those sales included in this new reporting
requirement if their annual third-party transactions total more than
$20,000 and the number of transactions is over 200.
This new reporting requirement provides the IRS with a far-reaching
compliance tool. It will allow them to determine a business’s gross
income from credit/debit card sales and make it easier to segregate
those payment card sales from cash sales.
The IRS will then be in a position to see if the credit card dollar
figure reported on the merchant’s tax return matches the bank’s
return. This also allows them to see if a business’s
other sales from cash and check payments makes sense in the context
of the firm’s overall business.
We can probably expect the IRS to develop statistics for various
types of businesses related to the ratio of cash payments to credit
payments, as a means of imputing cash payments for merchants that do
not report a reasonable amount of income over and above that reported
by the payment processors.
How Does This Affect You?
(1) You can expect your bank or other payment settlement services to
be verifying your tax ID number and contact in the next
few months leading up 2011. Be sure that the you provide
them is correct and matches the on file with the IRS.
(2) If you fail to provide the settlement entity with the
requested or the does not match the
on file with the IRS, the settlement entity is authorized
to withhold 28% of the payment as withholding. You will receive
credit for the withholding when your tax return is filed, but, if the
withholding is in excess of what you owe, you will have to wait until
you file your return to get the excess back.
(3) Make sure that your business has an appropriate accounting
system in place to properly record card payments so that they can be
reconciled with the 1099-K.
Payment Cards - A payment card, as defined by the IRS regulations,
includes, but is not limited to, credit cards, debit cards, and
stored-value cards (e.g., gift cards or similar cards with a prepaid
value). A payment card also includes the acceptance as payment of any
account number or other indicia associated with a payment card. The
use of a payment card to obtain a loan or cash advance does not
constitute a payment card transaction. The same holds true for the
withdrawal of cash from an automated teller machine-it is not
considered a payment card transaction.