New IRS Credit Card Payment Reporting Looms - Other News

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Credit Card Applications » News » Other » New IRS Credit Card Payment Reporting Looms

New IRS Credit Card Payment Reporting Looms

New IRS Credit Card Payment Reporting Looms
The content is accurate at the time of publication and is subject to change.

Beginning with the 2012 tax filing season, there will be a new form that taxpayers and merchants have to be concerned with—the 1099-K for Merchant Card and Third Party Networks.

Filling out and submitting form 1099-K to the IRS will be necessary for anyone who engaged in “reportable payment transactions.” What a reportable payment transaction is, in a nutshell, is a transaction in which a gift card or credit card is used and accepted as payment for any transaction settled via a third party payment network. PayPal is an example of one of these networks.

This is in accordance with a law that was designed to close the “tax gap,” the bulk of which is believed to be as a result of online transactions. The main motivation driving the creation of the law was to “improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.” The law was actually passed back in 2008. However, the reporting requirement portion of the law did not take effect until this year.

“It was actually something that we were following back under the Bush administration under the 2008 budget—we started to see these kinds of rumblings about the ‘tax gap’ and whether or not businesses were paying their fair share,”

According to money.cnn.com, Tom Henschke, president of the Pennsylvania-based SMC Business Councils, explained that his group was following the progress of this change during the Bush administration, when they started to hear the phrase ‘tax gap’ coming up a great deal, along with the questions of whether businesses were paying the right amount of tax. He thinks the responsibility for the new rules falls on both that and the current administration.

The “tax gap” is what exists between the amount of income that business and individuals technically owe to the IRS and what is actually paid. According to estimates made by the federal government, they lose around $300 billion each year due to income that is going unreported.

Also according to money.cnn.com, IRS Commissioner Doug Shulman said last year, when his agency unveiled the 1099-K, that better reporting of information would help the system of taxation work better, and ensure that everyone put in what they should. He praised the new law for giving the government an important way to close this ‘tax gap,’ and to give businesses improved records in order to carry out proper accounting of what they owe, and in order to better know their expenses and income.

The new form is likely to cause great confusion, come tax time.

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