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 1099 software > Learning Center > IRS 6050W

New tax law for online sellers

 

The IRS issued final regulations (TD 9496) regarding the new information reporting requirement under IRC 6050W for payment card and third-party network transactions. Starting Jan. 1, 2011, banks and similar transaction settlement entities (like Paypal) must file annual information returns for each participating merchant or other payee reporting aggregate gross receipts for the calendar year from credit and debit card sales or third-party network transactions. The final regulations adopted with several modifications—some in response to numerous comments—proposed regulations issued in November 2009 (REG-139255-08, with comments requested by Notice 2009-19).

 

The final regulations provided implementation guidance and amended existing regulations under sections 6041 and 6041A to provide relief from duplicate reporting for certain transactions. They also amended regulations under sections 6721 and 6722 to reflect penalties applying to failures to file correct information returns and payee statements required by section 6050W. In addition, the final regulations adopted without change proposed amended regulations under section 3406 to provide that amounts reportable under section 6050W are subject to backup withholding (effective for amounts paid after Dec. 31, 2011).

 

IRC 6050W


Under the new legislation, payment processoros will be required to report to the IRS the total payment volume received by their customers in the US who:
  •   Receive more than $20,000 in gross payment volume in a single year, AND
  •   Receive 200 or more payments in a single year.

The IRS changes will apply to all payment providers, like PayPal. They will take effect on January 1, 2011, with the first reports going to the IRS in early 2012.

If you meet the stated thresholds, you will be required to verify your identity by adding a SSN/TIN/EIN to your existing account.

IRS Form 1099-K

A draft of the 2011 Form 1099-K, Merchant Card and Third-Party Payments, is here. Form 1099-K is a new information return that payment settlement entities will use to report the gross amount of merchant card or third-party payments.

When Do the IRS Changes Go into Effect?

IRS 6050W covers all transactions in the tax year 2011 and each tax year that follows. Beginning in 2012, qualifying merchants will receive a 1099-K Form either electronically or by mail. Transactions occurring prior to 2011 will not be affected by this legislation.

Will All Merchants Receive 1099s?

No. Only merchants who receive over $20,000 in gross payment volume AND receive 200 or more payments in a calendar year will receive Form 1099-K electronically or by mail.

How Will I Know if IRS 6050W Impacts Me?

If a merchant meets both thresholds by receiving over $20,000 in gross payment volume AND 200 or more payments in a calendar year, payment settlement entities will send Form 1099-K electronically or by mail for the 2011 tax year.

Will I Be Affected by the 2011 Tax Changes if I Only Meet One of the Thresholds?

No. A merchant has to pass BOTH thresholds ($20,000 in gross sales volume and 200 transactions) in 2011 to qualify for the new requirements. A business receiving $10,000 in payments per year would not be affected by the new requirements.

Are non-profit organizations affected by the new IRS Tax Law 6050W?

Non-profits are treated the same as for-profits. Non-profits will be required to submit their SSN/TIN/EIN as well. Non-profit merchants will need to work with their tax professional to determine how they will need to file their taxes going forward, if they aren’t already.

Are personal payment transactions received counted in the total that will be reported to the IRS?

Yes. All payments received by an account will be used when calculating the total payment volume received.

How is the $20,000 calculated? Will it be calculated based on net or gross transaction earnings?

The $20,000 will be calculated by looking at a merchant’s gross sales volume.

Who is the Business Contact Name?

The Business Contact Name is the individual’s name that was provided to the IRS when applying for your TIN or EIN. This is the name that should be listed on your account when verifying your identity. If the name listed on your account is not correct, please upload or fax your documents by following the links on your account.

What is a SSN/TIN/EIN?

SSN = Social Security Number
TIN = Tax Identification Number
EIN – Employee Identification Number
Depending on your business type, all three of these numbers can be used to verify your identity with the IRS.

If I have multiple accounts that, when combined, meet the thresholds, but individually they don’t, will I still qualify?

Yes. All other payment processors will report sales and transaction volume to the IRS by SSN/TIN/EIN.

For example, if you have two accounts tied to the same SSN/TIN/EIN with the following payment levels:

  •   Account A - $18,000 in sales and 180 transactions
  •   Account B - $2,000 in sales and 20 transactions

Your accounts will qualify under the new regulation.

Please send an e-mail to info@1099fire.com with any feedback or comments about any of our products or services.

 
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