Do you know how Section 3091 of the Housing and Economic Recovery Act of 2008 will affect you?
Over the past three years, there have been numerous proposed laws enacted that have a material impact on how you run your business. Because there has been so much legislation, it’s easy to lose track of what’s changing, what stays the same and what you need to do. The Housing and Economic Recovery Act of 2008 had far reaching implications for the country. One provision which I mentioned last year is now in effect—Section 3091 of the law. It’s time to start planning for this provision if you haven’t done so already.
Refresher on Section 3091 of the Housing and Economic Recovery Act of 2008
As a means to further ensure that business owners file accurate tax returns, the law requires that third party payment processors report customer transaction volumes to the IRS with a 1099-K form. Let’s assume your company will generate $800,000 in credit card sales this year and those payments are processed by ABC Merchant Company. The law requires that ABC Merchant Company inform the IRS that they processed this amount in sales for your company. This information is transmitted through form 1099-K. Like other 1099 forms, a copy is filed with the IRS and a copy is sent to your company. ABC Merchant has until February 28 to transmit this information. The deadline is extended to March 31 if they file electronically.
The law goes into effect for tax years beginning after December 31, 2010 which means that we are now well into the first reporting period. February and March 2012 is when the first information will be transmitted by merchant processors to the IRS. Unlike other 1099 forms that simply require annual totals, the 1099-K requires a monthly breakdown of payments processed.
Your relationship with your payment processor just became more intimate
In order for payment processors to successfully prepare this form, they will require a valid taxpayer identification number for your company. The merchant processor must then confirm that the number is valid and properly matches IRS records. If you do not provide a valid tax payer identification number or if the information you provide does not match IRS records then merchants are required under the law to retain backup withholding taxes on merchant payments. If the merchant doesn’t comply, then it is responsible for the taxes due. No processors will run that risk.
