1099-K Form Overview
For non-profit organizations, the 1099-K form is largely informational.
The 1099-K is the latest addition to the 1099 "family" of reports and is similar to most other documents in the 1099 series. The 1099-K form is an informational document notifying you of the receipts your organization has received by payment card and third-party payment networks. The credit card company is also required to send a copy of the 1099-K to the IRS.
A Form 1099-K containing the gross receipts data will be mailed to merchants by January 31st of the year following the year for which the return is required.
Many non-profits and churches have begun accepting contributions via credit card, enjoying its convenience. Schools, daycares, and mothers' day out programs are receiving credit cards payments for tuition and fees. These receipts will all be reported on the 1099-K. However, since non-profit organizations do not usually pay income tax, the form is largely informational.
Reporting entities are also required to collect and verify the tax identification number (TIN) along with the merchant’s legal name and address associated with the TIN number. If a merchant fails to provide its TIN or correct legal name or there is a discrepancy between the information the merchant provided to the reporting entity and the IRS’ records, the IRS requires the reporting entity to begin backup withholding of the merchant‘s future settlements amounts.
Why didn’t the IRS contact me directly?
The IRS requirements are available throughout the payment processing industry and through various IRS publications. Taxpayers can find additional information on the IRS’ website at www.irs.gov or by consulting with a tax professional.
Why is the IRS requiring this reporting of merchants?
According to the IRS, this provision is designed to improve voluntary tax compliance by business taxpayers and assist the IRS in determining the tax returns are correct and accurate.
Why is the amount reported to 1099-K higher than my settled amount?
The IRS requires that we report the gross amount. The gross amount is defined as the total dollar amount of aggregated transactions in which a payment card is accepted and processed as payment for each merchant. This gross amount is not adjusted for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.
How is the “gross” amount defined?
"Gross amount" is defined as the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.
What is a merchant acquiring entity?
A "merchant acquiring entity" is defined as the bank or other organization contractually obligated to make payment to merchants in settlement of payment card transactions.
What is a “payment settlement entity”?
A “payment settlement entity” is, in the case of a payment card transaction, a merchant acquiring entity; or, in the case of a third-party network transaction, the third party settlement organization.
What is a Federal “TIN” or Tax Identification Number?
A Federal “TIN” or Tax Identification Number is an identification number used by the IRS in the administration of tax laws. If you are a sole proprietor, your TIN is your Social Security Number (SSN). For other business types, your TIN is your Employer Identification Number (EIN), also known as a federal tax identification number.
How is “Legal Name” defined?
A merchant's "legal name" is the name the merchant provided to the IRS filed on Form SS-4. This Legal Name should match what is on file with your payment processor.
What is a Federal “TIN” or Tax Identification Number?
A Federal “TIN” or Tax Identification Number is an identification number used by the IRS in the administration of tax laws. If you are a sole proprietor, your TIN is your Social Security Number (SSN). For other business types, your TIN is your Employer Identification Number (EIN), also known as a federal tax identification number.
What if my TIN or Legal Name is different than what the IRS has?
In accordance with IRS guidelines, if the payment processor does not have a merchant's correct Federal Tax Identification Number and Legal Name (as reported to the IRS), the merchant is subject to backup withholding from any future payments made. The current federal withholding amount is 28%.
What happens if I refuse to provide my TIN or Legal Name?
If we do not have your correct information, then an incorrect 1099-K will be filed with the IRS. Eventually, the IRS will require that all merchants with invalid tax records be subject to IRS mandated backup tax withholding. The current federal backup withholding amount is 28%, and we will be required to withhold such amount from your settlements and remit directly to the IRS beginning in 2013. We understand the impact that withholding funds can have on a business and want to help you avoid that IRS requirement.
Please visit the IRS website for additional details:
https://www.irs.gov/businesses/understanding-your-1099-k
The information contained in this summary is based on information available at the time of publication, which is subject to change. This information is provided as a convenience and is not intended to be or construed as legal advice. Because of the generality of this communication, the information provided herein may not be applicable in all situations, is not a comprehensive list of issues that could impact your business and should not be relied upon without specific legal advice from your legal, compliance and/or other subject matter expert. Your payment processor makes no representations or warranties as to the accuracy or completeness of this information and all such information is provided as a convenience only.