New 2011 IRS Form 1099-K

February 9, 2012

By the end of Jan. 2012, both business owners and the Internal Revenue Service (IRS) will have received a new tax form—1099-K—issued by credit card and online-payment processors. Form 1099-K, Merchant Card and Third Party Network Payments, will serve to report businesses total gross aggregate reportable payment transactions for the 2011 tax calendar.

Announced in 2009, as part of the enactment of the Housing Assistance Tax Act of 2008, Form 1099-K will be used for reporting payment card and third-party payment transactions to the IRS. Basically, credit and debit card companies and other vendors that handle third party payments, such as Amazon, PayPal or eBay, will have to track the quantity and dollar amount of payments made to each client. Companies that process less than 200 transactions and $20,000 in total payments will not receive the 1099-K form as they are considered a casual seller and will not be reported on.

As a result of this new requirement, the IRS revised the 2011 small business Schedule-C form, which now includes four new lines (1a-e) where small businesses are asked to input: the gross merchant card and third party network receipts and sales, which is the amount on the new 1099-K; any gross receipts or sales not included in the 1099-K; any income reported on a W-2; and the company’s total gross receipts.

It is important to note that, for tax year 2011, small businesses do not have to complete these four lines and can instead simply put a zero (0).

Given the concerns raised by NSBA and other industry groups, this additional reporting may not be a piece of the Schedule-C moving forward. NSBA is continuing to work with IRS officials and other small-business groups to ensure massive new burdens aren’t inadvertently placed upon small businesses with regards to the electronic payment reporting provision.