Understanding the 1099-K Form
The 1099-K form is part of the 1099 series of reports and serves as an informational document notifying non-profit organizations of the receipts they have received via payment card and third-party payment networks. The credit card company is also required to send a copy of the 1099-K to the IRS.
When is the 1099-K Form Sent?
A Form 1099-K containing gross receipts data will be mailed to merchants by January 31st of the year following the reporting year.
Why Non-Profits Receive 1099-K Forms
Many non-profits, including churches, schools, and daycares, have adopted credit card payments for their convenience. These payments are reported on the 1099-K form. While non-profit organizations typically do not pay income tax, the form serves an informational purpose.
IRS Requirements for Reporting Entities
1. Reporting entities must collect and verify the Tax Identification Number (TIN) and the merchant’s legal name and address.
2. If there is a discrepancy or missing information, the IRS mandates backup withholding on future settlements.
Frequently Asked Questions
1. Why didn’t the IRS contact me directly?
The IRS requirements are disseminated across the payment processing industry and available through various IRS publications. Taxpayers can find more details on the IRS website or by consulting a tax professional.
2. Why is the IRS requiring this reporting of merchants?
The IRS aims to improve voluntary tax compliance and assist in ensuring tax return accuracy.
3. Why might the reported 1099-K amount be higher than expected?
The IRS requires the gross amount to be reported, which includes all aggregated transactions without deductions for credits, fees, or refunds.
4. How is ‘gross amount’ defined?
The total dollar amount of all transactions processed as payment, not adjusted for any credits or refunds.
Key Definitions
1. Merchant Acquiring Entity: The bank or organization obligated to make payments to merchants for processed transactions.
2. Payment Settlement Entity: For payment card transactions, this is the merchant acquiring entity; for third-party network transactions, it is the third-party settlement organization.
3. Federal TIN (Tax Identification Number): The IRS-assigned number for tax administration. For sole proprietors, this is typically the SSN; for other businesses, it is the EIN.
4. Legal Name: The official name filed with the IRS on Form SS-4 and should match records with your payment processor.
What Happens if TIN or Legal Name Does Not Match?
In line with IRS guidelines, incorrect TIN or Legal Name details can lead to backup withholding from future payments.
Consequences of Not Providing Correct TIN or Legal Name
Failure to provide correct information may result in an incorrect 1099-K being filed, leading to potential IRS-mandated backup withholding.
For Additional Details
Visit the IRS website for more information: https://www.irs.gov/businesses/understanding-your-1099-k.
Disclaimer: This summary is informational and not legal advice. Consult a tax professional for personalized guidance. Your payment processor does not guarantee the completeness or accuracy of this information.
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