How the New IRS Form 1099K Impacts Your Business
Beginning with 2011 reporting, there is a new tax form called the 1099-K, Merchant Card and Third Party Network Payments. This is a new kind of 1099 that requires card payment networks (companies that process credit and debit card payments, including payment networks such as PayPal), to send a 1099 to merchants. These 1099s report the gross receipts that the card payment networks have collected for their customers. To trigger the reporting requirement, businesses must execute at least 200 transactions in a year that total up to at least $20,000. Payment processors will only submit Forms 1099-K for merchants that meet both thresholds.
This new reporting is effective for sales made on or after January 1, 2011 and the IRS plans to eventually match this information to business tax returns although this matching process will not go into effect until after 2011 reporting. As a business owner, it is important to pay attention to the developments in this area as the practical implementation issues evolve. You want to make sure that your accounting system can separately identify gross receipts received from payment networks versus those gross receipts that are paid by cash or check. By 2012, these amounts may have to be separately reported on your business returns.
One small bit of good news in this new legislation is that any payments you make with your credit card to vendors for services that exceed $600 no longer have to be reported on 1099-MISC. You will however, still need to report payments for services that you paid by cash or check.
We will keep you advised of new developments in this area. If you have any questions or need assistance in determining if your current accounting procedures will adequately identify the gross receipts you receive with payment cards, please contact us.
2012 Payroll Reminders
This is just a reminder of a few items you need to consider when processing your first payroll for the 2012 tax year.
Congress has temporarily extended the employee Social Security tax withholding rate cut leaving the rate at 4.2% through February 29, 2012. If you use software to calculate payroll, please make sure that the correct withholding rate is being used.
QuickBooks Enhance Payroll Users
QuickBooks has released a payroll tax update that reflects the above law. Please make sure that you have updated your QuickBooks before running your first payroll of 2012. To update your payroll, go to Employees/Get Payroll Updates. Click Update.
Also, before running your first payroll be sure that your state unemployment rate is correct for 2012. You should have received a letter from the state reflecting your 2012 unemployment tax rate. If you have not, you can call the unemployment office to get your rate. You can change your rate by going to Lists/Payroll Item List. Find the item for your State Unemployment. At the bottom of the screen, click on the Payroll Item DropBox and select Edit Payroll Item. Click Next until you reach the tax rates screen. Enter your new 2012 tax rate in the appropriate box. Be sure to enter your tax rate as a percentage. Click Next and then Finish.
If you have any questions, please feel free to contact us.
***** Payroll Tax Alert *****
Additional Federal Unemployment Tax Due for Certain Employers
In early December 2011, Virginia and North Carolina were included among twenty one states that did not repay their unemployment loans from the Federal government this year. As a result, the Federal government has reduced the amount of credit they will allow for unemployment tax paid to these states. The net effect to taxpayers is an increase in the effective FUTA tax rate of 0.3% of FUTA taxable wages. This means that your business will pay additional Federal Unemployment Tax of up to $21.00 per employee. This additional tax is calculated on Form 940 Schedule A and must be remitted by January 31, 2012.
For taxpayers who compute and file their own Federal Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” please be sure to include Schedule A with this year’s Form 940 return and add the additional tax on Line 11. Remember to remit the additional tax by January 31, 2012.
If Burgess & Co. prepares your quarterly payroll returns, we will advise you of any additional tax due. If you prepare your own returns and need assistance with this change, please do not hesitate to contact us.
IRS link for additional information: December 7, 2011 IRS Press release