With tax day behind us, it seemed appropriate to take a look at another tax issue that can cause fiscal harm to your business. Being aware of how reporting your merchant activity to the IRS can impact your business, will help you prevent the government from having a reason to dip into your account.
Each year, processors are required to provide your business with a form 1099K. The form needs to be submitted with your annual business tax return. The only exceptions are for businesses whose processing activity falls below the following transaction counts or volume.
- Retailers who have less than 200 credit or debit card transactions per year
- Retailers whose total credit and debit card transactions total less than $20,000
The rule, which took effect in 2012, was meant to “improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.”
When a new merchant account is set up here at TMC, we require a W-9 form. We use the information provided on this form to assist in the process of matching your W-9 info with what the IRS has on file. The processors that we work with will notify you if your Tax Identification number does not match what the IRS has on file. You will see that notification on your monthly merchant statement. As an extra measure to help prevent challenges related to a mismatch, our team also reaches out to our merchants when we are notified of a mismatch.
Why is this important?
Businesses who submit improper information could be assessed a penalty of $50.
Merchants with mismatched TINs could also risk an automatic withholding of 28% of their merchant account deposits. Additionally, some states may impose their own separate withholding penalty. This could result in a merchant not having access to the withheld funds until the following year when they file a tax return. Any merchant who receives a “B” notice initiated by the IRS will have just 30 days to respond prior to mandatory IRS-directed withholding of a minimum of 28% of gross sales.
To prevent the government from having access to your funds, make sure you check your monthly statements for any indication that your TIN has an issue.
Protecting your funds begins with submitting the proper information when setting up your merchant account, paying attention to any notices on your merchant statement and taking immediate action when you are notified of a challenge!