Reporting Mobile Credit Card Payments to the IRS

As a business owner, there are a variety of ways to accept payment. Apps like Square, Paypal, or other mobile payment services make it easy for you to accept card payments and keep a record of that income. But if you choose to receive payment via a credit or debit card, you must report that income on a specific tax form to the Internal Revenue Service (IRS).

Since 2011, the IRS has required business owners to report credit card and debit card transactions that resulted in income. Not only are business owners expected to report their income, but credit card and debit card companies are required to provide the IRS with information regarding your transactions. By requiring both you and your service providers to report your income information, the IRS can more accurately track how much you are likely to owe in taxes.

What are mobile payment services?

Mobile payments services are transactions that take place completely digitally through a mobile or tablet device. Mobile payment services have become an increasingly desirable way to pay for goods and services – but they are highly regulated too.

According to the IRS, card payments include debit cards, credit cards, and store cards. Basically, anything that resembles a credit card qualifies. Even if a buyer supplies you with just a credit card number, that counts toward the IRS’ definition of a payment card.

Mobile payment services are easy for both the buyer and the seller; they’re fast and secure. In fact, mobile payments totaled more than $49 million in the United States during 2017. That’s thousands and thousands of transactions, and it’s continuing to increase year after year.

Since electronic merchant payments aren’t slowing down anytime soon, it may be worth exploring digital payment options if you haven’t already.

How do you document income from mobile payment services?

Payment service collectors and other banks are required to report the receipts each business owner accumulates throughout the year. According to the IRS, any transaction in which a payment card is accepted as payment must be reported.

While that may seem like a lot of work, keeping tabs on mobile payments can be significantly easier than tracking cash payments. With mobile payments, you automatically receive a record of every transaction, making it simple to document and report.

If you use any type of popular financial software, you likely can link your payment accounts to your accounting software. That makes it easier than ever to keep an up-to-date record of your income.

How do you file taxes for mobile payment services income?

If you accept mobile payments, the third-party service provider that processes those payments for you will send you Form 1099-K, Payment Card and Third Party Network Transactions. For example, if you use Square, you’ll receive Form 1099-K from Square. If you use multiple mobile payment providers throughout the year, expect to receive Form 1099-K from each.

Form 1099-K includes the amount of your reportable payment transactions via a payment settlement entity in that year. According to the IRS, a reportable payment transaction is defined as a payment card transaction or a third party network transaction. Payment card transactions include any transaction where a payment card with identifying data is accepted as payment for a good or service. And a payment settlement entity is any service provider that processes credit or debit card transactions, like Square.

There are a few additional rules in place to regulate those transactions. A third party mobile payment network is only required to send you Form 1099-K if:

  • the amount exceeds $20,000 total, and
  • the service processed at least 200 transactions in that calendar year.

That being said, many payment service providers send the form even when those two requirements are not met. Some send it even when the amount is far below those two levels. Keep in mind, the total amount of reportable income does not include any credit, cash, discounts, fees, refunds, or other types of adjustments.

The money reported on your Form 1099-K must be added to your tax return the same as any additional income you received through cash or check.

Are there any fees involved with taxes for mobile payment services?

The IRS does not issue any penalties specifically for receiving payment via a mobile payment provider. As long as you accurately report all of your income on your tax return, the IRS does not care how you receive it. You will not be subject to any penalties or fees for that reason alone.

However, as a business owner, it’s important to stay current with your tax liability throughout the year. Make sure to pay your quarterly estimated taxes and not wait until the end of the year to pay your total tax bill. Not covering your tax liability throughout the year could result in additional penalties when you file your return later on. The IRS expects everyone, business owners included, to pay their tax bill as they earn income during the year.

Tips for reporting credit card and merchant payments to the IRS

Small business owners should keep on top of their business accounting practices and exercise thorough and detailed record keeping. Mistakes happen, so if you come across a tax mistake, take responsibility and file an amended return with the IRS as soon as possible.

While credit card payments keep fairly good records of transactions, you may face challenging chargebacks if you find you inaccurately accepted payments that weren’t yours. And that will affect your standard accounting. Chargebacks happen when the credit card provider ends up reversing a card transaction due to some type of dispute or potential fraud. By keeping track of chargebacks, you can then work to reconcile the amount you must actually report to the IRS.

As a merchant, you must include your legal business name, address, and your taxpayer identification number on your tax return. Without all of those details, your information will not match up with what your financial institutions report on your behalf. Failing to provide your tax identification information could make you subject to backup withholding from the IRS.

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