The purpose of this post is to discuss the new reporting requirements under Internal Revenue Code (IRC) §6050W for payment settlement entities (PSEs). Generally, PSEs, as entities under contractual obligation to make payment in settlement of payment card (credit card/debit card/gift card/credit account) transactions and third-party network transactions, are responsible for reporting such payments on IRS Form 1099-K, Merchant Card and Third Party Network Payments. The reporting requirements only apply for third-party network transactions when gross payments to any participating payee exceed $20,000, and more than 200 transactions occurred with that payee.
Generally, the PSE submits the instructions to transfer funds to payees’ accounts and thus must file Form 1099-K; however, if you contract with a third party, such as an electronic payment facilitator, to settle reportable transactions and to submit instructions to transfer funds to the participating payee’s account to settle reportable payment transactions, the third party must report by filing Form 1099-K.
For payments made in 2011, Copy A of each Form 1099-K is due to the IRS by February 28, 2012 (April 2 if filed electronically). In subsequent years, the filing dates are February 28 (paper) and March 31 (electronic). The Form 1099-K may be filed electronically after January 4 through the FIRE (Filing Information Returns Electronically) option. There is no fill-in form option.
Copy B of each Form 1099-K is due to the payee by January 31. This copy also may be furnished to the recipient electronically if certain regulatory requirements are satisfied. Please contact me if you wish to discuss this option. You also may furnish this statement on a website, subject to certain restrictions.
You must provide your name, address, and federal tax identification number (TIN) in the boxes for filer’s information. You also must provide each payee’s name, address and TIN. You may verify payee TINs on the IRS website. Submissions under these reporting requirements are subject to the IRS Taxpayer Identification Number Matching Program to ensure your Forms 1099-K include the correct TIN. In addition, if your organization has an account number for each payee, it also may be listed on Form 1099-K. If your organization has multiple accounts for a single recipient and more than one Form 1099-K will be filed, you must provide account numbers.
The gross dollar amount for the total reportable merchant card/third party network payment transactions for the calendar year must be reported in Box 1 of Form 1099-K. You must report this amount disregarding any adjustment for credits, cash equivalents, discount amounts, fees, refunds or other amounts. Further, you also must report this amount on a monthly basis in Boxes 5a through 5l.
You must report the four-digit Merchant Category Code (MCC) in Box 2 (third-party settlement organizations need not complete Box 2). You must assign to each payee an MCC that most closely corresponds to the description of the payee’s business. If any recipient has receipts classified under more than one MCC, you may either file separate Forms 1099-K for each MCC, or file a single Form 1099-K reporting total gross receipts under the MCC that corresponds to the largest portion of the total gross receipts.
The entity responsible for filing Form 1099-K (i.e., the entity that submits instructions to transfer funds) may contract with a third party to prepare and file Form 1099-K. However, the responsible entity is liable for any applicable penalties (at present, $100 per return that is late-filed or filed with incomplete or incorrect information).
2012 Error Relief
The IRS provided transitional relief, under IRS Notice 2011-89, for inaccurate data submitted on Form 1099-Ks filed in 2012, for payments made in calendar year 2011. The filer must make a good faith effort to file accurately and furnish the required accompanying payee statements. The IRS granted temporary relief from the penalties discussed above.