Reporting of Merchant Transactions Starts in 2011

Merchants, including sellers on eBay and Amazon, will have their payment transactions reported to the IRS starting in 2011. This new reporting, which was created in the Housing Assistance Tax Act of 2008, is designed to ensure that sellers report their income from sales.

Proposed regulations. Proposed regulations detail the reporting requirements of financial institutions and third-party settlement companies that process credit cards, debit cards, gift cards, and payments of any account associated with a payment card. Reporting is not required if a merchant has fewer than 200 transactions in the year and total amounts processed do not exceed $20,000. Payments are gross amounts, without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. Proposed regulations do not make any provision for de minimis payments.

If a merchant subject to reporting fails to provide a credit card processor or settlement company with a valid tax identification number (e.g., Social Security number for a sole proprietor in most cases), then the merchant will be subject to backup withholding on all processed funds starting in 2012.

New form. The IRS has released a draft of Form 1099-K, Merchant Card and Third-Party Payments, that will be used to note the gross amount of these payments, as well as provide a month-by-month breakdown.

Source: IR-2009-106, Nov. 23, 2009