Tax Code Changes
In 2011, the Internal Revenue Service implemented Section 6050w of the tax code requiring the 1099-K reporting of information from credit, debit, and other electronic payment methods. Processors have had two years to prepare their systems and validate the information for the beginning of the 2013-mandated requirement to file 1099-K’s to avoid fines and penalties for non-compliance.
If your business processed credit cards in 2011, you most likely received either a 1099-K in January 2012 or fine from your credit card processing company stating that your information was reported incorrectly. Now that 1099-K regulation is fully enforced, any incorrectly filed 1099-Ks will be returned with a B-Notice, a $100 fine (up from $50) and a maximum penalty of $1.5 million. That means processors and merchants must focus on collecting the correct information now.
More Importantly ...
A merchant who does not file the correct information is subject to backup withholding; the acquirer that filed the 1099-K must withhold 28 percent of that merchant’s income until a time when the tax information is amended. For many small merchants, not receiving 28 percent of their income may be the difference between profit and loss and possibly losing their business.
On another similar note, merchants must make sure that your credit card processor has the correct TIN (Taxpayer Identification Number) and taxpayer name or you could be subject to 28% withholding from your merchant account deposits beginning January 2013. We highly suggest that you are in contact with your processor to ensure that they have all of your correct information.