Form 1099-K 2016 Tax Year Filing Checklist
Purpose
Form 1099-K reports gross payment card and third-party network transactions for the calendar year 2016. Payment settlement entities (PSEs), electronic payment facilitators (EPFs), and other third-party payers must file Copy A with the IRS and furnish Copy B to payees by specified deadlines. The form helps the IRS track payment card and third-party network transactions to improve tax compliance.
Filing Requirements and Thresholds
Understanding the Dual Threshold Requirement
For third-party settlement organizations (TPSOs), Form 1099-K is required only when both thresholds are met: the aggregate gross transactions must exceed $20,000, AND the transaction count must exceed 200 for the calendar year. If either threshold is not met, you are not required to file Form 1099-K for that payee. Please note that payment card transactions have no minimum threshold and must be reported, regardless of the amount or transaction count.
Determining Your Filer Type
Identify whether you are a PSE, EPF, or other third-party entity and mark the appropriate checkbox on Form 1099-K. A PSE is either a merchant acquiring entity (typically a bank or organization with a contractual obligation to make payment to participating payees in settlement of payment card transactions) or a TPSO (the central organization with a contractual obligation to make payments to participating payees of third-party network transactions).
This designation determines your reporting responsibility and must accurately reflect the entity making actual settlement payments to the payee.
Obtaining Taxpayer Identification Numbers
Obtain and verify the payee’s complete taxpayer identification number, which may be a Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Adoption Taxpayer Identification Number (ATIN), or Employer Identification Number (EIN). For 2016 filings, Copy B furnished to payees displays only the last four digits of the TIN as a privacy protection measure. Still, you must report the complete TIN to the IRS on Copy A. Maintain accurate records of complete TINs for all payees.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Classifying Transaction Types
Determine the transaction type by marking either the “Payment card” or “Third party network” checkbox on Form 1099-K. Do not mark both boxes on a single form. If a payee receives both payment card and third-party network transactions from you, file separate Forms 1099-K for each transaction category.
Payment card transactions encompass all payments made using credit cards, debit cards, or stored-value cards. Third-party network transactions involve payments made through third-party payment networks where the network guarantees payment to participating payees.
Reporting Gross Transaction Amounts
Report the gross transaction amount in Box 1a for calendar year 2016. Gross amount means the total dollar amount of all reportable payment card or third-party network transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, chargebacks, or any other amounts. The dollar amount of each transaction is determined on the date the transaction occurs. Do not reduce the reported amount by refunds, returns, or processing fees.
Completing Merchant Category Code Information
Enter the four-digit merchant category code (MCC) in Box 2 if your payment processing system uses this classification. For 2016, you should report the MCC where it is known and available from your system. If you use an industry classification system other than MCCs, assign the MCC that most closely corresponds to the payee’s business description.
If you are a TPSO or do not use any industry classification system, you may leave this box blank. For payees with receipts under multiple MCCs, either file separate forms for each code or file a single form using the MCC corresponding to the largest portion of total gross receipts.
Furnishing Copy B to Payees
Provide Copy B to each payee no later than January 31, 2017. The statement must include the payee’s complete identifying information, including name, street address, city, state, and ZIP code. Include an account number or unique identifier assigned by your organization to help payees distinguish multiple accounts.
You may furnish statements electronically if you comply with the requirements in Treasury Regulations section 1.6050W-2(a). Ensure payees have the contact information necessary to reach a knowledgeable person about the reported payments.
Filing Copy A with the IRS
File Copy A with the IRS along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) by February 28, 2017, if filing on paper. Paper forms must be the official IRS versions because they are scanned during processing. You cannot file forms that you print from the IRS website. If you file electronically, the deadline extends to March 31, 2017.
Electronic filing requires software that generates files according to specifications in IRS Publication 1220. The IRS does not provide a fill-in electronic form option.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Recording Number of Transactions
Enter the number of payment transactions in Box 3, excluding refund transactions. This represents the total count of payment transactions processed through the payment card or third-party network during the calendar year.
For backup withholding purposes, payments made by a TPSO are subject to withholding only if the payee has received payment in more than 200 transactions during the year, regardless of the dollar amount. Payment card transactions are subject to backup withholding, with no transaction count limitation.
Handling Multiple Payment Settlement Entities
When two or more persons qualify as PSEs for the same reportable transaction, the PSE that submits the instruction to transfer funds must file the return. However, the PSE obligated to file may designate another person to file the return, including a PSE not making payment, if the parties agree in writing.
This written agreement does not relieve the designated person of liability for applicable penalties under Internal Revenue Code sections 6721 and 6722 if they fail to file the return promptly. Ensure clear documentation of any filing designation arrangements.
Working with Electronic Payment Facilitators
If you are a PSE that contracts with an electronic payment facilitator or other third-party to make payments on your behalf, the facilitator or third-party must file Form 1099-K instead of the PSE. The facilitator requires no arrangement or agreement with the participating payee and simply needs to submit instructions to transfer funds to the payee’s account.
If you are an EPF filing on behalf of a PSE, mark the EPF checkbox and enter the PSE’s name and telephone number in the designated box on the form so payees can contact the actual payment settlement entity.
Reporting Card-Not-Present Transactions
Enter the gross amount of card-not-present transactions in Box 1b if applicable. Card-not-present transactions occur when the physical card is not presented at the time of the transaction or when the card number is keyed into the terminal.
These typically include online sales, telephone orders, and catalogue purchases. This reporting helps distinguish between different transaction environments and potential risk categories. If you are reporting third-party network transactions, card-not-present information may not apply.
Completing Monthly Breakdown Information
Enter the gross amount of total reportable payment transactions for each month of the calendar year in Boxes 5a through 5l. This monthly breakdown provides the IRS and payees with detailed timing information about when transactions occurred throughout the year. Report the amounts based on when transactions were processed, maintaining consistency with your Box 1a total.
The sum of monthly amounts should equal the gross amount reported in Box 1a.
Managing State Information Reporting
Use Boxes 6 through 8 if you participate in the Combined Federal/State Filing Program or if you are required to file paper copies with a state tax department. Enter the abbreviated state name in Box 6, your state identification number in Box 7, and any state income tax withheld in Box 8.
The state information boxes accommodate reporting for up to two states. Keep information for each state separated by the dashed line on the form. If a state requires a paper copy, use Copy 1 to provide information to the state tax department and give Copy 2 to the payee for their state income tax return filing.
Applying Exception for Foreign Payees
Understand the exceptions for payments made to foreign payees. For payments under contractual obligations entered into after December 31, 2010, a PSE that is a U.S. payer or middleman is not required to file Form 1099-K for payments to a participating payee with a foreign address if the PSE has proper documentation to treat the payment as made to a foreign person.
However, you must file Form 1099-K if there is a U.S. residential or correspondence address associated with the payee, if you have standing instructions to direct payment to a U.S. bank account, if the payee submits for payment in U.S. dollars, or if you know or have reason to know the payee is a U.S. person. Consult IRS Notice 2011-71 and Notice 2012-2 for detailed documentation requirements and exceptions.
Key Compliance Points
Threshold Consistency
The $20,000 and $200 transaction thresholds have remained consistent since Form 1099-K reporting began in 2011 for the 2010 tax year. These thresholds apply only to third-party network transactions. Payment card transactions must be reported regardless of the dollar amount or number of transactions. Ensure you correctly use these thresholds to determine filing requirements for each payee.
Gross Amount Definition
Always report gross amounts without any deductions or adjustments. The IRS explicitly requires reporting total dollar amounts without regard to credits, fees, refunds, chargebacks, shipping costs, discount amounts, cash equivalents, or any other adjustments. Payees will separately account for these adjustments when calculating their actual taxable income on their tax returns.
Backup Withholding Requirements
Report any backup withholding in Box 4. Payees who fail to furnish their taxpayer identification number in the manner required are subject to backup withholding. For TPSO payments, backup withholding applies only if the payee received payment in more than 200 transactions during the calendar year, regardless of the monetary amount.
Payment card transactions are potentially subject to backup withholding, with no transaction count limitation. Refer to the 2016 General Instructions for Certain Information Returns for the current backup withholding rates and detailed requirements.
Penalty Awareness
Familiarize yourself with penalty provisions under Internal Revenue Code sections 6721 and 6722 for failure to comply with information reporting requirements. These penalties apply for failure to file correct information returns with the IRS and failure to furnish correct payee statements by the required deadlines. Penalties may be assessed even when filing responsibilities are delegated to another party unless proper written agreements are in place.
Documentation and Record Keeping
Maintain complete and accurate records of all reportable transactions, payee information, and TINs. Keep documentation supporting any exceptions you apply, particularly for foreign payee exceptions. Retain copies of all Forms 1099-K filed and furnished for at least three years.
Implement systems to accurately track transaction counts, monthly amounts, and gross payment totals, ensuring accurate and complete reporting.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
