Starting in 2011, the Internal Revenue Service began implementing regulations that require all merchant card processors and their processing bank partners to report the gross amount of payment card and third-party network transactions to the IRS. The Housing and Economic Recovery Act of 2008 created a new reporting requirement for members of the electronic payments industry. Every processor is required to file a 1099-K form with the IRS as well as provide a corresponding statement to merchants.
The new law requires reporting entities to collect and verify the tax identification number (TIN) along with the merchant’s legal name and address associated with the TIN number. If a merchant fails to provide its TIN or if there is a discrepancy between the merchant’s TIN and the associated information in the reporting entity’s records and the IRS’ records, the IRS requires the reporting entity to withhold a minimum of 28 percent of the merchant‘s future payments from card transactions. This withholding provision went into effect for payments starting in 2012.