Online Billing: Be Aware of New Tax Rules

Steven H. Bryson

During the billing panel at the XBIZ Conference in LA earlier this month, I spoke about a new tax-reporting requirement for merchants that we all need to be aware of and prepare for in the payment community.

As part of the Housing Assistance Tax Act of 2008, which was added to IRS Code Section 6050W, all acquiring institutions are required to report the gross amount of payment card and third party network transactions processed annually to both participating merchants and the IRS beginning with the 2011 calendar year.

These new reporting requirements are an example of a widespread obligation placed on acquirers as a result of legislative action.

These new requirements place a great deal of responsibility on merchant service providers and other acquiring institutions to provide accurate and timely information to their merchants and the IRS. The IRS has developed a 1099K form, which acquirers and merchants will utilize for reporting purposes to the IRS. The initial submission of these 1099K forms will occur in early 2012, as part of the reporting for the 2011 tax year. Additionally, the information provided to the IRS is required to be submitted with accurate taxpayer name and Taxpayer Identification Number (TIN) information. If there is a discrepancy in the taxpayer name/TIN combination, the IRS may subject the merchant to possible withholdings and penalties. To facilitate the process, the IRS has developed an Online TIN Matching Program, which may help acquirers in matching of taxpayer name and TIN data for 1099K submissions. This particular requirement is vastly different from the recently repealed 1099 reporting requirement which requires small business owners to file an IRS form each time they make a purchase of $600 or more from a vendor, as part of The Patient Protection and Affordable Care Act of 2010.

Various merchant processing entities and third-party software application vendors are already developing solutions to assist acquirers and merchants with this new legal requirements. These solutions include reporting for the annual gross sales data for each merchant, as well as working with the IRS Online TIN Matching Program to complete accurate 1099K forms for submission to the IRS. Additionally, these services may eventually allow for the electronic submission of the 1099K forms to the IRS, as well as the distribution of copies of this information to merchants. As 2011 progresses, these solutions will become of great interest to acquiring institutions as they embark on the process of the 1099K forms submissions in early 2012.

These new reporting requirements are an example of a widespread obligation placed on acquirers as a result of legislative action. In order to fulfill these obligations, acquiring institutions will invest quite a bit of money along with many hours of manpower into these reporting solutions to assist their merchants. It will certainly be interesting to see how the farreaching implications of legislative action affect the payment card industry as a whole in the very near future.

Steven H. Bryson is chairman of OrbitalPay LLC and Global Electronic Technology Inc. (GET).