Q & A On The New Form 1099-K

Beginning in 2012, the IRS is requiring a new Form 1099-K to be issued. What does this new form mean for the small business person?

Q: What is this new Form 1099-K, and when is it required to be reported?

A: The new Form 1099-K is entitled "Merchant Card and Third Party Network Payments," and it will be required to be reported for 2012, even though many merchant service companies are reporting earlier and sending out a 2011 form. On the form, in Box 1, is the total gross amount of merchant card/third party network payments, and this amount is also broken down by month.

Q: Will I be receiving a Form 1099-K in early 2013?

A: Yes, if you have a merchant services account that settles credit/debit card purchases for your business and deposits these settlements into your business checking account.

Q: What do I need to do with the new Form 1099-K?

A: On your 2012 business tax return will be a new line item in the income section called "Merchant card and third party payments." You (or your tax accountant) will put the total amount from all of your Form 1099-Ks on this new line.

Q: Do I have to do anything else with the new Form 1099-K?

A: Only if your business files any 1099-Misc for independent contractors, and you pay them via a merchant services account or a third party network, e.g. PayPal. If you include those payments on your 1099-Misc to them, they will be double counted because they will also receive a 1099-K with those payments on them. If you pay your independent contractors with checks or direct deposits, you won't need to do anything differently. If you use PayPal, or a credit/debit card, to pay your independent contractors, you'll need to exclude those payments from your 1099-Misc to them.

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