Frequently Asked Questions - IRS / TIN Requirements

FAQs - IRS / TIN Requirements

The Housing and Economic Recovery Act of 2008 is a federal regulation that requires "merchant acquiring entities" to report the gross transaction amount of their merchant customers to the IRS. The new requirements from Internal Revenue Service (IRS) will apply to any payment transaction beginning on January 1, 2011, with required reporting and tax withholding to begin in 2012.

The new law requires banks and other payment settlement entities to collect and verify the tax identification number (TIN) along with the merchant’s legal name and address associated with the TIN number.If there is any discrepancies between the merchant’s TIN or associated information in the reporting entity’s records and the IRS’ records, the IRS requires the reporting entity to withhold a minimum of 28 percent of the merchant‘s future payments from card transactions. This withholding provision goes into effect for payments starting in 2012. All merchant acquiring entities must collect via the W-9 Form and verify the Tax Identification Number by performing TIN Matching and associate the legal business name and address for each of their merchants on file.

Beginning in January 2012, every payment processor will file a 1099-K form with the IRS reporting the gross amount of each merchant’s card transactions for the 2011 year, as well as provide a corresponding statement to merchants.

This is a nine digit number used as a tracking number by IRS for tax administration.This number is required on all tax returns filed with IRS.For Individuals it is in the form of Social Security numbers (SSNs), businesses are assigned Employer identification numbers (EINs). Trusts and other non-business units are assigned straight tax ID numbers (TINs).

In the case of payment card transaction it is a merchant acquiring entity or in the case of third party network transaction it is third party settlement organization.

The new law will require payment card processors and third-party settlement organizations to report merchant transactions to the IRS beginning in 2011.

The payment processor will report the gross receipts for all electronic payment transactions to the IRS. A Form 1099-K will be provided to the merchant on or before January 31st of the year for the return to be filed for subsequent year.

It is designed to improve voluntary tax compliance by business taxpayers and assist the IRS in determining the tax returns are correct and accurate.

Merchant must ensure that the payment processor has the correct TIN and legal name on file. Any discrepancy between the TIN and the legal business name in the payment processor records with the IRS' records will lead to IRS mandated backup the merchant may be subject to backup withholding of a minimum of 28% from any future payments made, adhering to IRS guidelines.backup withholding is directly transmitted to the IRS.

No information report will be required if a merchant's total payment transactions for the year does not exceed $20,000, and the total number of transactions does not exceed 200.

The payment processor must collect and verify your TIN and associated legal name and address for your merchant business. Beginning with the 2011 tax year, they are responsible for collecting merchant's total annual dollar amount of payment card transactions to report to the IRS in 2012. In January 2012, the processor must file a Form 1099-K, an information return, with the IRS and provide a copy to the merchant for the 2011 tax year.

Merchants who fail to provide their taxpayer identification number could become subject to backup withholding at a rate of 28% on their payments. To prevent backup withholding, merchants should provide their card payment services provider with the name, address, and EIN for the business. Another concern is that credit card transactions could become subject to backup withholding or garnishment if a business becomes delinquent on their tax payments. Under the proposed regulations, the IRS made it clear that backup withholding would occur on gross card payments. This could leave a business in severe financial difficulties. Business owners who are struggling with tax debts should work with their tax professional to develop a repayment strategy that prevents any withholding on their card payments.

Yes, all merchants must comply with these requirements.

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