An excerpt from IRS Form 1099-MISC instructions:
Payments made with a credit card or payment card and certain other types of payments, including third party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate Instructions for Form 1099-K.
Source: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf
In plain English, payments made to recipients (payees) that would otherwise be required to be reported on IRS Form 1099-MISC are not required to be reported on Form 1099-MISC if the payments are made by credit, debit, payment card, or by “third party network transaction”. This is because the recipient’s merchant processor is required to issue a Form 1099-K to the recipient for the total amounts paid to them in the calendar year if certain IRS reporting threshold is met.
What’s not crystal clear about this is exactly what consitutes a “Third Party Payment Network Transaction”. Why do you care? If the your payment is not subject to Form 1099-K reporting by their processor, then it subject to you reporting it on Form 1099-MISC (if the circumstances of the payment require Form 1099-MISC reporting).
It seems that that some companies are reporting on Form 1099-K for all payment types (credit card and bank transfer) while others maybe only reporting credit card payments. This may be due to either the ambiguity of a what a “third party payment network” really is or possibility the legal characterization may be different depending on whether the received funds are held in a processor account for the recipient as opposed to a direct ACH transfer into the recipient’s bank account, we’re not completely sure.
Paypal: No, DO NOT report on Form 1099-MISC.
Under the FAQ: “How does PayPal calculate the dollar amount shown on the Form 1099-K?“, it appears that Paypal will report the total of all payment types (credit card and account-to-account transfer) on Form 1099-K if the IRS reporting thresholds are met. Conseqently, no Paypal payments should be reported on Form 1099-MISC.
Intuit Payment Network: ONLY report NON-credit card payments on Form-1099-MISC?
We have read that on an Intuit Community Forum post (which is not authoritative but couldn’t find anything that was) that Inuit Payment Network is only including credit card transactions on the 1099-K forms that they are issuing to their recipients, that bank payments are not included. Definitely do not report credit card transactions on Form 1099-MISC. To be safe, report the bank payments.
Do payments made to vendors that use an ACH provider to withdraw payment from payor’s bank account need to be reported on Form 1099-MISC? Yes, they are reportable on Form 1099-MISC.
While there is a lack of distinction in the “Third-Party Network Transactions FAQs” between the example senario and an Automated Clearing House (ACH) description, because a relationship would exist between the payee (recipient of the funds) and the ACH provider if the ACH provider was contracted by the recipient to withdraw the funds from the payer’s account via a ACH transaction, the FAQ wording “an automated-clearing house does not qualify as a third-party settlement organization and payments on its network are not reportable.” spells it out clearly. Also, “Example 4 ACH Processor” contained in the final rule of “Information Reporting for Payments Made in the Settlement of Payment Card and Third Party Network Transactions” also clearly states that an ACH processor is not a “Third Party Payment Network”.
Are payments paid through online banking or ACH (Automated Clearing House) to a recipient need to be reported on Form 1099-MISC? Yes report on Form 1099-MISC.
This seems pretty clear, the payment is required to be reported per the normal Form 1099-MISC rules. The payer’s online banking typically sends out paper checks to the recipient but sometimes processes a direct deposit or ACH transaction to the recipient’s bank. Regardless, the recipient’s bank does not have a requirement to issue a Form 1099-K for checks or ACH transactions received.
Disclaimer: The above article is provided for informational purposes only. It is not legal or accounting advice. You should seek a qualified advisor for your specific situation.
Other sources:
http://paysimple.com/blog/2012/01/09/form-1099-k-and-your-small-business
http://www.irs.gov/uac/Third-Party-Network-Transactions-FAQs