Watch out for 28% withholding effective January 1, 2013
Starting in the 2011 tax year, credit/debit card processing companies were required to file Form 1099-K to companies for payments made in settlement transactions for each calendar year. As part of this requirement, they are required to verify the taxpayer identification number (TIN) and business legal name as listed for all of their merchant accounts. If the legal name and TIN as listed on your business merchant account is not an exact match to IRS records, they are required to withhold 28% on all of your credit/debit card transactions effective January 1, 2013. Below are a few helpful tips:
1. Contact your credit/debit card processing company to verify your TIN and legal name per IRS records match what they have on file. Don’t wait for them to contact you!
2. Review your monthly statements to verify nothing has been withheld
3. Important information for law offices:
- The 28% withholding requirement also applies to all credit/debit card transactions directed to IOLTA trust accounts.
- If anything is withheld from client funds intended to be deposited in the IOLTA account there may be some ethical issues.
4. If you have abbreviated or otherwise changed your business name on your merchant account, contact them as soon as possible to make sure they have your business’s full legal name (according to IRS records).