As tax season is underway and you receive W-2s and 1099-MISCs in the mail, you may notice something new this year: Form 1099-K. Preparing your taxes and filing Form W-2 and 1099-MISC may be more familiar, but what is this Form 1099-K? It is important to know because the Merchant Card and Third Party Network Payments form, or 1099-K, must either be filed electronically to the IRS by April 2, 2012, or on paper to the IRS by February 28, 2012. Timeliness is vital if you want to avoid a delinquent return.
As part of the Housing Assistance Tax Act of 2008, specific credit card or third party merchant payments for goods and services will need to be reported via the 1099-K. A transaction to be reported is when a credit card or gift card is accepted as payment or when you are paid by PayPal or another third party payment network. Not included are ATM withdrawals, credit card cash advances, issued checks from a payment card, or transactions where a payment card was accepted by merchant related to the card issuer.
In other words, if you have a merchant account for your credit card, or an electronic payment account like PayPal, you may receive a 1099-K from your service provider. This could affect consultants such as lawyers that receive payments online or by credit card for their services, freelancers who are paid via PayPal like eBay merchants and Etsy sellers, and small businesses who receive credit, debit, and PayPal payments for their merchandise.
When is reporting required for a 1099-K? When gross payments to the individual payee are over $20,000, and if there are more than 200 transactions. Therefore, if you are an occasional seller, you don’t need to worry about receiving a 1099-K. However, successful online sellers will likely be receiving one this year. If this applies to you, make sure to plan for paying the taxes on this income.
Since 2012 marks the first year this form is required and it can cause some confusion, the IRS is offering 1099-K filing transitional relief this year, as long as the filer is making a “good faith effort” to file it accurately. This means that penalty provisions and withholding requirements will be delayed by the IRS until January 1, 2013. The reporting is what is moving forward in 2012.
The 1099-K is meant to improve tax compliance by businesses so the IRS can determine the completeness and correctness of their tax returns. This is a way for the government to tackle income that they think is underreported. As with a W-2 or 1099-MISC, receivers of the 1099-K are expected to report this income when completing their taxes.
Don’t let new forms like the 1099-K or updates to existing ones cause confusion and mistakes that can lead to penalties in the future. Get help with tax settlement from the team at ProfesionalTaxResolution.com. They have the expertise to help you with tax filing your tax returns. Call (877) 889-6257 or email info@protaxres.com today for a free, no obligation consultation.