Any income that is received through credit and debit card transactions will have to be reported to the IRS by filing form 1099-K (Payment Card and Third-Party Network Payments).
Financial institutions and merchant card service providers will have to report the annual gross payments which have been processed either through debit or credit card using form 1099-K to IRS and to the merchants. The 1099-K form format is unlikely to be similar to the 1099 misc form which is used to report miscellaneous incomes earned by non-employees/independent contractors/freelancers.
As the new development has already taken off considering that January 2013 has already begun, it would be advisable that payment processors and business owners get ready, prepare the information they need and file form 1099-K and send a copy to the IRS and the recipients as early as possible.
Details of Credit Card and Merchant Payment Reporting
Banks and other payment settlement services will need to report gross annual receipts for each merchant. The income reporting will apply to "any transaction in which a payment card is accepted as payment". Thus, banks and other financial service providers will be reporting the total, gross amount of credit card and debit card payments for the year for each merchant.
Exception for De Minimis Payments
Reporting 1099-K form is not required if
· A merchant's total payment transactions for the year does not exceed $20,000, and
· The total number of transactions does not exceed 200.
· A withdrawal of funds at an automated teller machine (ATM) via payment card, or a cash advance or loan against the cardholder's account
· A check issued in connection with a payment card that is accepted by a merchant or other payee.
· Any transaction in which a payment card is accepted as payment by a merchant or other payee who is related to the issuer of the payment card.