New IRS Regulations Pertaining to your Card Payments Revenue

Holders of merchant accounts are now required by the IRS to provide copies of their SS-4 documents to comply with new regulation.  Below we answer some common questions about this new requirement.

1. What is a Federal “TIN” or Tax Identification Number?

A Federal Tax Identification Number (TIN) is an identification number used by the IRS in the administration of tax laws. In most cases, the TIN is either a Social Security Number (SSN) or Employer Identification Number (EIN), also known as a federal tax identification number (Also known as The Federal Employer Identification Number or FEIN).

2. How is “Legal Name” defined?

For purposes of complying with the new law, a merchant's "legal name" is typically the name the merchant uses to file its federal tax returns, or the legal name the merchant provided to the IRS filed on Form SS-4. This should match what is on file with your payment processor.

3. What is the definition of a “payment card”?

“A payment card” generally means a credit card, debit card, transit card, governmentally-issued electronic benefit transaction (EBT) card, or any other card which is accepted as payment by a network of persons unrelated to the issuer of the card and to the other merchants who accept the card as payment.

4. How is the “gross” amount defined?

Under proposed regulations, "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. This is for communication purposes only and is not intended to provide any legal or tax advice. Please visit the IRS Website at www.IRS.Gov for additional information on the 6050W requirements.

5. 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.

6. 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.

7. What does this requirement mean for merchants?

As your payment processor, we will report your gross receipts for all electronic payment transactions to the IRS. A Form 1099-K will be provided to you on or before January 31st of the year following the year for which the return is required.

8. 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.

9. What does a merchant need to do in order to comply?

As a merchant, you must ensure that your payment processor has the correct TIN and legal name on file. Accurate tax information matching your IRS tax records will help to prevent possible IRS backup withholding.

10. Do all merchants have to comply with these requirements or does it only apply to merchants who process a certain amount of transactions / volume?

Yes, all merchants must comply with these requirements.
Professionals in the payment industry “requested” that the IRS set a de minimus threshold, (more than 200 transactions aggregating more than $20,000 per calendar year for a given payee), for all payment card transactions in order to be required for reporting. Final IRS regulations did not adopt this recommendation for merchant acquiring entities or banks.
(Business owners are encouraged to discuss with their individual tax consultant regarding rules and explanations related to their tax status.)

11. Why didn’t the IRS contact me directly?

The new IRS requirements were made available throughout the payment processing industry and through various IRS publications. Taxpayers may find additional information on the IRS’ website at www.IRS.Gov or by consulting with their tax professional.

12. What if my TIN or Legal Name is different than what the IRS has on file?

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 may be subject to backup withholding of a minimum of 28% from any future payments made, adhering to IRS guidelines. This is for communication purposes only and is not intended to provide any legal or tax advice. Please visit the IRS Website at www.IRS.Gov for additional information on the 6050W requirements.

13. Does the payment processor keep any portion of the 28% withheld from my payment?

No, the IRS requires that backup withholding is directly transmitted to the IRS.

14. How do I update my tax records?

If you receive notification from your merchant processor that your information needs to be updated, please provide a copy of your SS-4 to them. For any other questions or changes, merchants may contact the number on their merchant processing statement.

15. What if my company has several divisions? Will the payment processor report a 1099-K form for each division or subsidiary?

Under the proposed rules, acquirers are not required to split or differentiate the reporting. Payment processors are required to report the total volume paid to US legal entities.

16. How does this law affect franchise merchants?

Under the IRS regulations, if a merchant is a franchise of a larger organization but not owned by that larger organization, then the franchise's "reportable payment transactions" would be reported to the IRS at the ownership level and would be separate from the larger organization. However, if the merchant location is owned by a larger organization this merchant's "reportable payment transactions" would be included in the totals for the larger organization.

17. How do I know that you have everything required and will not withhold payments next year?

Merchants with non-matching IRS information will continue to receive communication along with the necessary actions to take in order to prevent backup withholding in 2012.