Payee Statements and New Form 1099-K

Although the Form 1099-K requirement began in 2012, it is still relatively new, and taxpayers who receive payee statements reflecting information reported to the IRS on Form 1099-K, Merchant Card and Third Party Network Payments have questions. The answers require looking back to 2008 when Congress passed new payment card (merchant card) reporting requirements.

 

Filing Form 1099-K

The Housing Tax Assistance Act created Code Sec. 6050W, which generally requires payment settlement entities to report payments made to merchants for goods and services in settlement of payment card and third-party payment network transactions. The scope of Code Sec. 6050W is broad and Congress intended it to be so. The new reporting is required for sales and other covered transactions made on or after January 1, 2011. Under Code Sec. 6050W, credit card companies and electronic payment processors are required to annually file aggregate transaction reports with the IRS listing their total annual payments to individual merchants who receive more than $20,000 and conduct more than 200 transactions each year.

 

Using IRS Form 1099-K

Code Sec. 6050W and regulations issued by the IRS contain very technical language to describe the various entities that may be involved, on one way or another, in payment card (merchant card) reporting. Essentially, Code Sec. 6050W can be summarized as principally requiring financial institutions that process a business’s credit and debit card sales to report to the IRS the business’s gross card transactions for each calendar year (on Form 1099-K). The financial institution also is required to provide a copy of the information report (payee statement) to the business. There are certain exceptions for merchants with a small number of transactions.

 

What is Form 1099-K

A payment settlement entity generally must file Form 1099-K for payments made in settlement of certain payment transactions for each calendar year. A payment settlement entity makes a payment in settlement of a reportable payment transaction, meaning any payment card or third party network transaction, if the payment settlement entity submits the instruction to transfer funds to the account of the participating payee to settle the payment transaction. Information reporting for payment cards and third party network transactions made during the tax year are due to the agency by January 31 of the following year but the deadline is April 1, if you file electronically.

 

What are IRS Payee Statements?

Payee statements. Reporting commenced in 2013 for payment and third party network transactions that occurred in 2012. Payment settlement entities must provide a payee statement showing the information reported to the IRS on Form 1099-K to each participating payee. The IRS has explained that the statements must be provided to the payee by January 31 of the year following the calendar year for which the return was made.

 

Why File IRS Form 1099-K?

The reporting requirement under Code Sec. 6050W is one of the most extensive in recent years. Financial institutions, credit card issuers, national retailers, and many others began planning for the reporting requirements shortly after passage of the Housing Tax Assistance Act. The IRS has issued regulations and has posted frequently asked questions about Code Sec. 6050W on its website. Despite all of the information available, questions remain, especially by taxpayers receiving payee statements that may have been incorrectly sent or that specify gross payments which may not have a direct bearing on their taxable income.