Each year at the end of January, credit card payment processing companies mail each of their merchants a 1099-K. This form is required by the IRS and is an important piece of information that helps merchants file their taxes.
As a reminder, the IRS first introduced the 1099-K as a way to make sure that merchants reported their total sales on their annual tax return. Merchant services companies are required by the IRS to report payment card/third party network transactions, including those made with credit cards, debit cards, and stored value cards, such as gift cards.
New for 2015, the 1099-K now includes the gross dollar amount for the merchant’s card-not-present transactions, whereas in the past this was an optional field. This amount includes transactions where the card was not physically present at the time of sale, as well as transactions that were hand keyed into the merchant’s terminal.
Each 1099-K includes the merchant’s annual sales volume, as well as their monthly subtotals. Merchant services companies are required to report gross sales, not adjusting for credits or returns, by the transaction date, instead of the deposit date. Processors must provide a 1099-K for all transactions that they settle, meaning those for which they placed the deposit into the merchant’s account. Additionally, processors must provide a separate 1099-K for each business that has a unique federal Tax Identification Number (TIN). If the merchant has more than one merchant account, their 1099-K will include sales for all of their accounts, as long as they are under the same TIN.
Merchants may see another change that is a byproduct of the new American Express OptBlue Program. Previously when merchants accepted American Express, they received their deposit directly from American Express. This meant that merchants received a separate 1099-K for their American Express activity. However, with OptBlue, credit card payment processing companies deposit American Express funds along with Visa, MasterCard, and Discover. This means that the processor “settles” American Express, and therefore must include American Express volume in the 1099-K.
Like other credit card payment processing companies, we just finished delivering 1099-Ks to our merchants in compliance with the IRS’ January 31 deadline. By now most of your merchants understand what they need to do with this form since it’s been around for a few years. However, if you have a new merchant, they may have questions, such as what they need to do with this form and where to look if they need more information.
For starters, suggest that your merchants share this form with their tax professional so they can use it to complete their annual return. If your merchants have questions about the IRS’ requirements or the form itself, we have two pages on our website that are specifically focused on the IRS reporting rules and what type of information merchants will find on their 1099-K. Feel free to direct your merchants to these two pages on our site:
If you or your merchants still have questions about the 1099-K, credit card payment processing companies can be a great source of information. Talk to your provider and they can direct you to other resources so you can make sure that you are prepared to handle any questions that might come your way.