1099 for Credit Card Payments: A Complete Guide

1. Do you need to file a 1099 Form for credit card payments?

2. The Law Behind Credit Card Payments:

Payment settlement entities such as merchant acquiring entities and third-party settlement organizations, like payment app providers, must report the annual gross payments to the IRS and the businesses receiving them as per Internal Revenue Code section 6050W(c)(2). These entities must report these payments through Form 1099K to the IRS and are not required to report on Form 1099-NEC and Form 1099-MISC.

3. Understand your 1099-K Form

Form 1099-K is a report of payments you received for goods or services during the year from the following sources:

• Payment settlement entities such as merchant acquiring entities are responsible for Credit, debit, or stored value cards such as gift cards
  (payment cards).
• Payment apps or online marketplaces, also called third-party settlement organizations (e.g. PayPal) or TPSOs.

These organizations must complete Form 1099-K and send copies to the IRS and you. It's important to note that payments you receive from family and friends are not reported on Form 1099-K. You should use Form 1099-K along with other records to help you calculate and report your taxable income when filing your tax return.

4. What are Payment Settlement Entities?

Payment settlement entities are the organizations responsible for reporting the payments made to participating payees. They can be domestic or foreign. For payment card transactions, merchant acquiring entities are the payment settlement entities, and for third-party network transactions, third-party settlement organizations are the payment settlement entities.

A Payment Settlement Entity (PSE) is a company or bank with a deal to handle payments made with credit or debit cards. So, when you use your card to buy something, this entity processes that payment and sends the money to
the seller.

Note: You're a participating payee if you accept payments using a credit or debit card or get paid through a third-party network for transactions. This includes individuals, businesses, and even government offices or groups connected to them.

5. What is a Third-Party Settlement Organization(TPSO)?

A third-party settlement organization is a central entity that has the contractual responsibility to pay participating payees(generally a merchant) in a third-party payment network. The characteristics of a third-party payment network include:

• having a central organization with which providers of goods and services have established accounts
• an agreement between the central organization and providers to settle transactions between the providers of goods and services and purchasers.
• the establishment of standards and mechanisms for settling transactions
• the guarantee of payment in the settlement of transactions.

The most common example of a third-party settlement organization is an online auction-payment facilitator, which operates as an intermediary between buyer and seller by transferring funds between accounts to settle an auction or purchase.

Note: Healthcare networks, in-house accounts payable departments, and automated clearing houses are not considered TPSOs and are not required to report under
section 6050W.

6. Reporting Threshold for 1099-K Form

For the 2024 tax year, third-party settlement organizations (payment apps and online marketplaces) are required to file Form 1099-K with the IRS if the following condition is met:

• The total transactions exceed $5,000.

7. Secure and Simple 1099 E-Filing through TaxBandits

TaxBandits provides e-filing solutions for 1099-NEC, 1099-MISC, 1099-K, and other 1099 forms. Our solutions are designed to meet the needs of tax professionals and businesses of all sizes. TaxBandits offers features such as bulk filing, importing data from various accounting software platforms, and providing recipient copies through postal mail or secure online access.

To file 1099 forms with TaxBandits, follow these steps:

• Step 1: Create an account and select the 1099 Form.
• Step 2: Fill in the required 1099 Form information.
• Step 3: Review the details and transmit the 1099 Form to the IRS.

Streamline your 1099 reporting confidently with TaxBandits! The W-9 Manager solution allows you to easily request and send W-9s, which helps in 1099 filing and ensures IRS compliance.

Start your 1099 filing today with TaxBandits and stay tax-compliant!