Introduction & Overview
The Housing and Economic Recovery Act of 2008 is a new federal regulation that requires “merchant acquiring entities” to report the gross amounts of their merchant customers’ electronic payment transactions to the IRS. These new requirements will apply to transactions beginning on January 1, 2012, with required reporting to begin in 2012. All merchant acquiring entities must collect and verify the Tax Identification Number (TIN) and associated legal business name and address for each of their merchants on file.
As a result of this new law, procedures and system enhancements implemented are to prepare merchants for the impact of these requirements, effective January 1, 2012. The Secretary of the Treasury is releasing of the specific requirements and regulations associated with the new reporting rules. We will continue to update you with educational and support information as it becomes available.
The Housing and Economic Recovery Act of 2008 created new payment transaction reporting requirements intended to help the IRS identify underreported sales. At year-end, the reporting entity (i.e. the “merchant acquiring entity”) will be expected to file a Form 1099-K, an information return, with the IRS and provide a copy to you, reporting the gross amount of the credit card, debit card, gift card, and e-commerce transactions associated with your business.
Requirements & Implications
The new reporting law – which was opposed by business associations, banks and industry associations before it was ultimately signed into law – also requires processors to collect and verify each merchant’s Tax Identification Number (TIN) and the legal business name and address associated with that number.
If you fail to provide your TIN, or if there is a discrepancy between your TIN and the legal business name in the processor’s records and the IRS’ records, you will be subjected to IRS mandated backup withholdings. This withholding provision goes into effect for transactions starting in 2012 (unlike the reporting provisions of the legislation, which apply to transactions beginning on January 1, 2012).
The acronym for Tax Identification Number, TIN, is a generic term to refer to a business’ Employer Identification Number (EIN) or the business owner’s Social Security Number (SSN). If you are notified that your TIN or legal business name in your processor’s records does not match the IRS’ records, you must provide your processor with a Form W9.
New Reporting Requirements Summary
IRS Requirements for Processors:
- Processors must collect and verify your TIN and associated legal name and address for your merchant business.
- Beginning with the 2012 tax year, Processors are responsible for collecting your total annual dollar amount of payment card transactions to report to the IRS in 2012.
- In January 2012, processors must file a Form 1099-K, an information return, with the IRS and provide a copy to you for the 2012 tax year.
- Beginning in 2012, if your TIN/legal business name combination that was provided to your processor does not match the information on file with the IRS, you will be subjected to IRS mandated backup with holdings.
IRS Requirements for Merchants:
- You must ensure that the TIN/legal business name combination that was provided to your processor for payment card transactions matches the information on file with the IRS.
- When you receive a copy of the information return filed by your processor annually, you should compare that information with your own tax records to validate the accuracy of the information.