1099-K… What is it?

January 31 is approaching and the tax forms are accumulating. Your organization or church has prepared the 1099-Misc forms for 2011, the W-2s have been sent out, and you’re ready to breathe a sigh of relief. Then you get a new form in the mail, a 1099-K. “Oh no, another form,” you think. “What do I do with it?” For most non profits, the answer to this question will probably be: “file it away safely with the other reports you receive at year-end”.

The 1099-K is the latest addition to the 1099 “family” of reports and is similar to most other documents in the 1099 series. It is an informational document notifying you of the receipts your organization has received by credit card. The credit card company is also required to send a copy of the 1099-K to the IRS.

How does this apply to an organization receiving contributions? Many non-profits and churches have begun accepting contributions via credit card or PayPal™, enjoying its convenience. Schools, daycares, and mothers’ day out programs are receiving credit cards payments for tuition and fees. These receipts will all be reported on the new 1099-K. However, since non-profit organizations don’t usually pay income tax, the form is purely informational.

The 1099-K’s existence dates back to the Housing Assistance Tax Act of 2008. Some history on why the new form was created can be found in Part VII of this summary of the bill by the House Ways and Means Committee which states, in part, “Some merchants fail to report accurately their gross income, including income derived from payment card transactions. Generally, compliance increases significantly for amounts that a third party reports to the IRS.” The provision is expected to raise more than $9.5 billion over 10 years.

More information can be found on the IRS website, including a copy of the form, and more detailed IRS instructions. If you have any questions on this or another 1099 related issue, please contact our office at 281-399-8153.