Tax reporting just got a little trickier for merchants that accept credit card or debit card payments. Never fear, though. This blog will help you identify and carry out your responsibility regarding Section 6050w of the IRS tax code.
The code has been in action since January 1, 2011. In a nutshell, it requires payment processing companies to report to the IRS the income merchants have received from credit or debit card payments. This code helps companies that accept credit cards to better comply with tax law.
As of January 1, 2013 payment processors will be required to withhold a 28% rate for merchants who have filed a name with a credit card processing company that does not match the tax name filed with the IRS. The processing company will be required to take the 28% that they have collected (also known as backup withholding), and turn it over the IRS.
Steps Merchants Can Take To Make Sure Payment Processors Have Correct Information
There are a few simple, yet important steps merchants can take to ensure a smoother compliance with the Section 6050w law and the changes that are happening.
The company name your processor has on file for you must match what the IRS has on file. It can be as simple as a name that is abbreviated that should be spelled out entirely, whatever the case, the two names your processor has and what the IRS have on file much match exactly.
The best way to ensure you do not have the 28% payments withheld from your credit card and debit card earnings would be to consult your SS-4 form (Employer Identification Number letter) or your 1099-K form, either of which will show the correct company name the IRS has on file for you. Once you are sure it matches provide that correct information to your processor and you shouldn’t have to worry about backup withholding.
If you have had the 28% withheld from your credit card and debit card payment then the only way your business can get your withholdings back would be to file a tax return. Once you have taken the steps to get back your withholdings through a tax return you will want to follow the step mentioned above so you will not have the 28% withheld from your credit and debit card payments again.
Don’t hesitate, contact your merchant services provider today and make sure the tax ID name you have on file matches the name that the IRS has on file.