The available instructional materials for completing Form 1099-K are on the IRS website and are subject to updates to incorporate any amendments to tax laws or reporting limits. Consideration should be given to the relevance of the most recent instructions because they might include changes in the law that have taken place recently. Taxpayers and business enterprises can access ready to use online fillings copies of this form which eases the burden of completing and sending out the forms to the respective recipients.
In Form 1099-K, PSEs must include all reportable payment transactions for every calendar year. Reportable transactions refer to those done through payment cards or third-party networks which results in a funds transfer to a payee. Here, PSE can be understood in the broad sense, and refers to banks, agent banks, payment processors or other entities that have signed up to process or settle transactions with the payees concerned. However, organizations such as internal accounts payable departments for a company or sources of healthcare payments do not meet the definition of a TPSO, because those are not in section 6050W.
These types of payees are referred to as “participating payees” because these payees are goods or services selling entities that receive payments via payment cards or TPSOs. There is a provision for the paying card transactions only where those card networks are made up of issuers, merchants and cardholders at a settlement mechanism. This applies to social media too in cases where ‘a third party payment network’ has several merchants to transact images or any other images. These prepaid card based networks have a central network provider which has to satisfy certain conditions including owning a fund and opening an account with that network provider.
Certain transactions are exempt from reporting under section 6050W, especially those involving foreign payees or payers, depending on where the payment is made and who is involved. For example, payments made by U.S. payers or middlemen to offshore accounts after December 31, 2010, are generally exempt from reporting if documentation verifies the payee as a foreign person. Exceptions apply when a PSE has reason to believe the recipient may be a U.S. person, especially if there is a U.S. residential or correspondence address associated with the payee. Under such circumstances, the PSE may be required to submit a Form 1099-K. Documentation such as a Form W-8 or other evidence verifying non-U.S. status is necessary to avoid the reporting obligation.
For payments conducted by non-U.S. payers to foreign payees, no reporting requirement exists if the payee does not have a U.S. address, as long as the payer has no reason to believe the payee is a U.S. resident. However, should any U.S. address be associated with the payee, the non-U.S. payer must gather reliable documentation proving the payee’s foreign status to avoid filing Form 1099-K. The requirement to maintain updated documentation, including W-8 forms, applies in cases where a PSE is unsure of the payee’s foreign status, with such documentation remaining valid for three years unless changes in circumstances arise.
PSEs that do not have payee accounts can avail of certain exceptions in this regard. Such PSEs may use an alternative method if they conclude that the payee’s activities fall entirely outside the United States, which is based on certain data they review at the time of entering into the agreement. This is in relation to the case where a PSE might not have an associated account for the particular payee and instead uses an intermediary financial institution located outside the USA. In this case, the PSEs are given a grace period in which to either collect or request documentation of the payee’s foreign status, as long as the relationship abides by the provisions of section 1020.220 of the respective regulations.
Until 2011, a US based payer was not obliged to report any payments made to foreign payees under already existing contracts, when the payer had no reason to know of the payee’s status in the USA. These provisions are similarly applicable to foreign payers who make payments to foreign payees, where due diligence documenting that the payee is not a U.S. person would relieve the payor of any tax filing obligations.
Some assignments are characterized as “non reported” within the meaning of section 6050W. Such transactions consist of cash disbursements from ATMs or other similar forms of cash access that are not associated with a reportable payment card transaction. The IRS purposely eliminates such transactions from the scope of Form 1099-K to emphasize actual food and drink transfers that are made for consideration as opposed to merely reported. This form of clarification guarantees that only payments that fall within the scope of third party network payments or payment card settlements will be accompanied by a Form 1099-K.
