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What to Do If Your Business Receives a Form 1099-K

form 1099k.jpgNo better way to get your mind off the holidays than to look ahead to tax season. This could be a good (or bad) distraction, depending on how well prepared you are to face Uncle Sam in April. If you are operating a business, accepting credit card payments and receive a Form 1099-K from your merchant service provider come January, you may want to keep reading.

Since the inception of the The Housing and Economic Recovery Act of 2008, businesses have been required to report year-end, gross amounts of their merchants’ credit card, debit card, gift card, and e-commerce transactions to the IRS by filing the 1099-K form, an information return. This can be particularly challenging for merchants unequipped with software to help them identify what portion of their sales, in fact, was paid by credit card. Some payment processors have developed handy Settlement Reconciliation Services (SRS) to help ease this burden, but more on that later.

Here are some helpful Q&A’s, put together by the IRS, to answer questions typically asked by merchants regarding the Form 1099-K:

I received Form 1099-K. How do I report it on my tax return?
Separate reporting of these transactions is not required. However, you should follow the return instructions on the form you are completing to report your gross receipts or sales. You should report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F.

What information must be reported on the Form 1099-K?
The gross amount of reportable payment transactions for the calendar year and its corresponding months are required to be reported for each payee. The reporting of both annual and monthly amounts is necessary to resolve differences between information returns and tax returns of fiscal year filers. The name, address and taxpayer identification number of each participating payee must also be included on the form.

When are Forms 1099-K due?
Information reporting for payment card and third party network transactions is due to the IRS on the last day of February of the year following the transactions. If filing electronically, it is due the first day of April of the year following the transactions.

Is there a de minimis exception for Forms 1099-K by third party settlement organizations?  
There is a “de minimis” exception from reporting for a third party settlement organization with respect to third party network transactions. If payments to a participating payee exceed $20,000 and exceed 200 transactions within the calendar year they must file for that participating payee.

Where can I call if I have a question on the Form 1099-K?
Payors who have questions about the Form 1099-K itself, may call the IRS at 1-866-455-7438. Payees who have questions about the information on a Form 1099-K they have received should contact the filer, whose name appears in the upper left corner on the form.  

Although the IRS does provide businesses with valuable resources and information to help them understand the components of Form 1099-K, businesses should also be able to look to their payment processing partner for additional support in managing this process.

For example, NTC Texas currently provides its clients with access to the MerchantConnect SRS tool, giving them a quick and easy view of their credit, debit, and gift card transaction activity that was settled and reported to the IRS.

Merchants are able to access information related to Settlement Reconciliation, including:

  • Tax ID Number (TIN) Validation: ensures that Elavon has the correct TIN and legal business name on file to avoid IRS-mandated backup withholding. If the information does not match, you will be directed to submit a Form W-9 online.
  • Processing Volume: access to monthly transaction activity reports including chargebacks, credits, returns, and other related expenses.
  • Clear and Simple Reporting: reports are easy to understand and roll-up monthly, quarterly, and annually for up to 4 years.
  • Electronic 1099K: merchants can sign up to receive their Form 1099K electronically to avoid postal delays or delivery and security issues.

With proper research and the right payment processing partner, businesses should be able to easily segment their electronic payment activity and protect themselves from any conflict with the IRS. For more information on Form 1099-K see the full General FAQs on Payment Card and Third Party Network Transactions.

Business reporting

Ashley.jpgAbout the Author – Ashley Choate is a native of Jacksonville, FL where she lives with her son, dog, and three cats. She graduated Magna Cum Laude from Jacksonville University with a BA in English and holds an MAED in Adult Education and Training. She lives for reading and writing, learning and teaching, and figuring out the day-to-day traumas and joys of mommyhood.

 Top Photo Courtesy of Pexels at Google CC.