1099-K / 1099-MISC dual reporting concern – and a solution

Nov 7, 2014

Would a company be subject to 1099-K & 1099-MISC dual reporting if it receives credit card payments?

In excess of $20,000 and over $600 from a given client?

Could I not issue a 1099-MISC if I paid a merchant/contractor by credit card?

This post is more about US domestic payments but interesting nevertheless.

Following regulation TD 9496 and IRC section 6050W, since Jan. 1, 2011, banks and similar transaction settlement entities must file annual information returns for each participating merchant. Yep, Paypal’s big on it, hence the 1099-K was dubbed the “PayPal 1099”. Or other payee reporting aggregate gross receipts for the calendar year from credit and debit card sales or third-party network transactions.

So, if you’re a merchant other than a corporation and you receive credit card payments. And you receive more than $20,000 of credit card payments during the year. The company that processes the credit card transactions will issue you a Form 1099-K.  The IRS will then match this form with the gross receipts you reported. Sounds nice and fair but…

Prior rules (IRC section 6041)

Anybody (in a trade or business) who paid somebody (other than a corporation) more than $600 during the year had to issue a Form 1099-MISC. Hence the merchant could receive a Form 1099-MISC and a Form 1099-K for the same payment. This could cause the IRS to mistakenly believe that he’s underreporting his gross receipts.

The final regulations

The final regulations adopted proposed rules to avoid duplicate reporting of transactions. By providing relief from the expanded information reporting requirements under section 6041. Under the Patient Protection and Affordable Care Act, PL 111-148, payments by a trade or business aggregating $600 or more to any single vendor during any calendar year will have to be reported. Reports need to be made at the end of each calendar year to the vendor. And to the IRS on an information return. Such as Form 1099. The final regulations (TD 9496) specify that transactions that are reportable under both sections 6041 and 6050W must be reported under section 6050W and not under section 6041.

As such, if you pay someone by credit card for a transaction that would otherwise be reportable on a 1099-MISC, you can disregard the portion that was paid by credit card. Either report a reduced amount on form 1099-MISC or not issue a Form 1099-MISC if the new number comes to be less than $600.

Solely for purposes of determining whether a payor is eligible for this relief, the de minimis threshold for reportable third-party network transactions under section 6050W (more than 200 transactions to a payee aggregating more than $20,000 per the calendar year) is disregarded.

Hence, you can reduce your 1099-MISC reporting without regards of the $20,000 gross receipt that the merchant may have (if they have less than $20,000 of gross receipt processed by that credit card company, then they might well not receive any 1099 – but they’ll self-report anyway on their tax return, because they’re honest).

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