Starting in the year 2011, payment transaction processors will be required to report to the Internal Revenue Service the gross sales transactions for their merchant accounts. The IRS recently published proposed regulations as part of their effort to implement this new requirement to report credit card sales. This is going to impact small businesses and entrepreneurs if they accept credit cards, debit cards, gift cards, Paypal or similar electronic payments.
Here's what we know so far. Anyone who has a merchant account, Paypal account or similar payment processing account will receive Form 1099-K from their service provider. (Here's a draft version of Form 1099-K so you can see what it will look like.) This new Form 1099-K is required unless the account-holder has total payment transactions for the year that do not exceed $20,000, and the total number of transactions does not exceed 200. The Form 1099-K will report gross sales transactions. The figures reported on the 1099-K will not be adjusted for transaction fees, refunds, or chargebacks.
Like the well-known Form 1099-MISC, entrepreneurs will need to make sure the numbers on the form are accurate and provide a copy of this form along with other tax documents given to their tax professional.