New IRS Reporting Laws for Merchant Services | IRS Code Section 6050W
New IRS reporting laws for merchant services | IRS code section 6050W. For the past few years, the IRS has been working on a new law requiring all merchants to provide reports on their merchant account processing volumes. These new requirements under IRS Code Section 6050W are likely a simple attempt to catch a few businesses in the practice of grossly underpaying their taxes, however, the new requirements will be far from simple for merchants and processors.
Under the new rules, the merchant account provider or processor will be required to submit a 1099-K for each merchant. The difficulty in this lies in the exact matching of the merchant’s business information on file with the IRS and information listed with the processor. Types of discrepancies may include missing tax id numbers, social security numbers, or differing business names. It will be up to the merchant to make sure all information is matching.
It’s already obvious that there will be issues with merchants and the new law. In order to enforce compliance, the IRS is mandating that the credit card processor withhold 28% of all credit card sales of any merchant with discrepancies until all information is updated and accurate. When the merchant fixes all discrepancies, the 28% will be returned, however, not until year’s end. This backup withholding could cause financial stress for the business.
One of the biggest concerns is the fact banks and processors will be reporting gross receipts. The merchant’s transactions may be less than this amount when they include charge backs, refunds or debit card transactions where customers receive cash back. It will be up to the merchant to keep track of these items separately to be reconciled accurately with the IRS in order to avoid fees and penalties.
There are two exceptions to the requirements in which the processor will not have to file a 1099-K:
1. The merchant’s total annual transactions do not exceed $20,000
2. The merchant’s total number of transactions does not exceed 200.
Although credit card payments will be reported at yearend 2011, as a gesture of good faith, the IRS is allowing merchants additional time to fix discrepancies. The IRS will not begin assessing penalties for non-compliance until January 2013.
Call your current processor when you have a few moments and make sure your information is up to date.
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