Does Your Business Accept Credit Card Payments?
In 2012, credit card processors have been reporting all gross credit card transactions processed for businesses to the IRS; you will receive a form 1099-K for these gross receipts. Your business may have received a form 1099-K from your credit card processor last year (for 2011). This is required by tax code Section 6050W, which was designed to assist the IRS in identifying businesses not filing accurate tax returns.
Starting in January 2013, the IRS will begin imposing a 28 percent withholding penalty on all credit card transactions, if a business or firm’s taxpayer identification number (TIN or FEIN) and the legal name on each account does not exactly match with IRS records. Check your 2011 1099-K and make sure that your legal name and TIN are an exact match to that reported on the form. If there is a discrepancy on the form, if there are abbreviations or misspellings of your name, if your business has changed names or if you are using a new fictitious corporate name, contact your credit card processor immediately. Make sure that you are in compliance with these new IRS requirements by the end of the year to avoid the possible 28 percent withholding penalty that starts January 1, 2013. This is your last chance to make sure that you have matched your exact legal name and your federal tax identification number with your credit card processor or 3rd party payment aggregators (such as Square or PayPal). There is no reason to risk the 28% withholding penalty when it can be easily avoided.