Reporting requirements for entities making payments to merchants as reimbursement for credit and debit card transactions
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Payments made to merchants as reimbursement for credit or debit card purchases by customers must now be reported to the IRS and New York State. These new requirements, found in § 6050W of the Internal Revenue Code and § 1703 of New York's Tax Law, begin with payments made in 2011.
Who the requirement applies to
Some credit and debit card providers may directly reimburse merchants for purchases made using the card. Other providers may contract with a third party to manage the transfer of funds to the merchant. These third parties include:
- merchant acquiring entities
- third party settlement organizations
- electronic payment facilitators
- entities acting on behalf of third party settlement organizations
Whether the reimbursement payment to the merchant is made directly by the card provider or by one of these third-party entities, the payments must be reported to both the IRS and New York State. These new reporting requirements:
- help increase voluntary tax compliance
- reduce fraud and even the playing field for all taxpayers
Federal reporting requirement
Card providers and other entities covered by the statute must report payments to the IRS by using Form 1099-K, Merchant Card and Third Party Network Payments.
- If filing electronically, Form 1099-K is due March 31 of the year following the transactions.
- If filing paper, Form 1099-K is due February 28.
Visit the IRS website to learn more about federal reporting requirements.
New York State reporting requirement
New York's reporting requirement follows that of the IRS. Within 30 days of the federal filing, card providers and other entities must report to the New York Tax Department payments made to New York payees. This reporting requirement can be fulfilled in one of two ways:
- Reporting the identical information filed with the IRS. Although this may include information from out-of-state payments, the Tax Department is prohibited from using any information not related to New York payees.
- Reporting payments related to New York payees only. If you choose this option, you must request a database file of New York payees from the Tax Department, which will be available 45 days before the filing deadline. You must:
- report payments to all payees contained on the New York supplied database;
- report payments to any other payees with a New York State address; and
- sign a confidentiality agreement as to the contents of the database.
How to report payments to New York State
Whichever reporting method you choose, you must electronically report the information to New York State.
- TSB-M-12(2)C, (2)I, (2)S, New Information Regarding Due Dates and Other Requirements for Filing Information Returns Relating to Credit Card and Debit Card Payments
- See NYS Tax Law § 1703