New Developments on IRS 1099-K Reporting

February 8, 2012

Update for Feb. 10: The IRS has produced a “Frequently Asked Questions” on the 1099-K reporting requirements for small business Schedule-C forms. In short, they announce that the Schedule-C reporting as it pertains to the 1099-K for tax year 2011 is not required and reconciliation will not be required on the 2011 forms or in future years. They also have postponed for one year the withholding requriement for businesses whose Taxpayer Identification Number (TIN) doesn’t match or has errors.

As NSBA reported last week, the Internal Revenue Service (IRS) has developed a new tax form—1099-K—for credit card and online-payment processors which small businesses are just now receiving. Form 1099-K, the Merchant Card and Third Party Network Payments, is a form third-party payment companies (Visa, Amazon, PayPal, etc…) use for reporting payment transactions made to their clients to the IRS. The third-party payment companies must remit the 1099-K to the IRS and send a copy to each of their clients on which they reported.

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.

Although the new reporting is already on the Schedule-C 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 is not expected to be a piece of the Schedule-C moving forward. NSBA has met with IRS officials who are expected to announce their intent to remove from the Schedule C the additional reporting lines already included on the 2011 forms. Furthermore, NSBA has been told that the IRS does not anticipate any future requirement on small businesses to reconcile their receipts as the un-corrected Schedule C form would have done.

In advance of any formal announcement from the IRS, Rep. Aaron Schock (R-Ill.) introduced legislation that would repeal the 1099-K reporting requirement on Schedule-C filers. The 1099K Overreach Prevention Act (H.R. 3877) will statutorily remove this burdensome reporting requirement by preventing the IRS from requiring new calculations by businesses on their tax returns based on the 1099-K reports.