Now that the holiday season is over, it`s tax season! And the IRS is introducing a new form this year – the federal form 1099-K. Otherwise known as the Merchant Card and Third Party Network Payments form, the 1099-K will be sent out early to applicable recipients. They are scheduled to be in the hands of merchants no later than January 3. All electronically-filed 1099-K`s are due to the IRS on April 2 and paper filings are due by February 28.
This being the first year of the 1099-K there is likely to be a fair amount of confusion. Therefore the IRS is set to delay all penalty provisions in addition to withholding requirements until the first of January, 2013 for all entities obliged to issue the forms. However, the reporting is moving forward.
Here is how things ought to go: certain payments received by merchants via credit card or third party merchants will be reported using the new 1099-K form to the IRS. The types of payment transactions that must be reported using 1099-K are transactions in which a payment card – such as a gift card, credit card or debit card – is accepted as a means of payment or any transaction that uses and is settled by a third party network – such as PayPal. Transactions that are NOT included are credit card cash advances, ATM withdrawals, checks issued in connections with payments cards or any such transaction in which a payment card is accepted by a merchant or other payee as a payment and who is related to the card issuer – such a bill payment.
What this means for taxpayers in plain English is that anyone who has a PayPal account, credit card merchant account or meets the criteria otherwise will be receiving form 1099-K from their service provider. Recipients will include professionals such as architects or lawyers or doctors who accept credit card or online payments for their services, freelancers who are compensated via their PayPal account, eBay merchants, etsy sellers, affiliates and other small businesses that accept PayPal, debit card or credit card payments in exchange for their goods.
However, not every single dollar will be counted. IRS reporting is only required when the total amount of gross payment to an individual payee is over $20,000 for the year and when the total amount of transactions with the participating payee exceeds 200. This means that individuals occasionally selling odds and ends over the Internet will not likely have to grapple with a 1099-K. However, proprietors of successful online stores has better get ready.