(H/T – Charlie Sykes)
In his discussion of the requirement of every small business to report to the IRS every payment of at least $600 in the aggregate (discussed here earlier this year), David Frum found a real gem of a form – Form 1099-K (draft version). While that is not the form he is thinking of, one of his readers remembered what that form is for. It seems a credit/third-party network transactions reporting requirement was slipped into the “Housing Assistance Tax Act of 2008” by Harry Reid and his fellow Senate Democrats, and it is a doozy, and the IRS made it an even bigger doozy in its proposed implementing regulations.
To cut to the quick; all payment-card payments (on cards issued by an entity unrelated to the entity accepting final payment) and all third-party network transactions that exceed $20,000 and 200 transactions to a particular payee in a year from said network (not from an individual account holder, but from every account holder) must be reported on an aggregated monthly basis, and a separate 1099-K must be filed for each determinable cardholder/account owner.
Are you going to use that Chase MasterCard to buy a $800 computer from Best Buy in March 2011? Are you going to use your debit card to buy a $8 meal from Culver’s in April 2011? Are you going to use PayPal to buy a $500 airline ticket from AirTran in June 2011? Will you be passing through a tollbooth using EZ-Pass in January 2011? Will you be using a WMATA SmarTrip card on a DASH bus in February 2011? Will you be making a phone call using a prepaid phone card in September 2011? If so, the IRS will find out about it.
But wait; it gets “better”. If you accept a payment-card or third-party network transaction, you better tell that card or payment company your correct Taxpayer ID Number if you don’t want them to withhold federal taxes on the payments due you.
I suppose there is one little bit of good news. If those proposed IRS regulations I linked to go through without changes, those of you with businesses just might have a little less paperwork to deal with. If all of your payments to a particular vendor are made with a business credit card, you won’t have to report those payments because your credit card company will take care of that for you.
I look forward to the reactions from the millions of people who have never seen or heard of a 1099 when getting them in the mail just prior to tax season.