TaxAlerts Tax Article
August 2011 | Written by: Karen Reed, EA
If you accept credit cards or use an electronic payments service such as PayPal to process your sales transactions, you may be receiving the new IRS Form 1099–K in early 2012 for tax year 2011. Beginning with tax year 2011, banks and other payment processing services will be required to file Form 1099–K to report gross receipts, both to you and to the IRS.
The new form will be used by the IRS to make sure the income you report on your tax return matches with the information they receive. Since the amount reported to you on Form 1099–K will be the gross amount, not including adjustments for charge backs, refunds, discounts, credits or fees, make sure you have good records to support any discrepancies between the amount you report on your return and the amount reported to you on 1099–K.
The new reporting requirement applies to merchants who receive more than $20,000 in gross payments AND over 200 payment transactions. If you meet both of these thresholds, you should receive your 1099–K by early February of next year. Issuers are required to mail the forms by January 31, 2012. Failure to furnish a valid taxpayer identification number (TIN) to the bank or payment processor could subject you to backup withholding, according to the new rules.