Starting January 1, 2011, merchant acquiring entities and third party settlement organizations must file an information return to the IRS. In other words, if you accept credit or debit cards, your processor will be filing a 1099-K based on information on file as of 1/1/2010. The processor will report gross transaction totals by individual merchant account.
WHAT MERCHANTS NEED TO KNOW:
Both the TIN and the business name must match. If your credit card processor has different information than what you file on your Business Tax Return, you’re in trouble. In a sampling of 250,000 business data files submitted to IRS by a processor for match verification, 50% failed. It is the merchants responsibility to ensure a match, not the processors.
If the name or TIN do not match your business is subject to backup withholding.
If you owe back taxes your business is subject to backup withholding.
Your tax return must include the 1099 information, or again, you’ll have trouble.
The backup withholding comes from your gross receipts. That means the IRS will get the money directly out of your sales and they WILL NOT BE DEPOSITED TO YOUR BANK. Their portion goes direct from the processor to the US TREASURY.
This is the current information on backup withholding for businesses.
Backup Withholding (BWH Rate Table)
28.0%……Payments after December 31, 2002 until sunset December 31, 2010.
I’m not an accountant or a lawyer. If 50% failed a sampling test this year, and these were not small businesses, how many do you think are going to fail when this goes live? What do you think the back-log will be to the IRS when you file an amendment, request a hearing etc? In the interim, what are you going to do if 28% of payments are withheld?
Pull out your Business Tax Return and match it to your merchant application. Are they the same? Be pro-active, don’t wait.
This is just one of several legislative initiatives with a potentially big impact on your business.