Reporting Credit Card and Merchant Payments to the IRS

Credit Card Payments to Your Business Are Reported to the IRS

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The Internal Revenue Service has required since 2011 that income received through credit and debit card payments must be reported. If your business accepts credit card payments online, you'll receive a Form 1099-K from each processor summarizing all these sales transactions. 

The Law 

Internal Revenue Code section 6050W(c)(2) requires that banks and merchant services must report annual gross payments processed by credit cards or debit cards to the IRS, as well as to the merchants.

Credit card payments are reported using Form 1099-K with copies sent to both the business and the IRS. 

Details of Credit Card and Merchant Payment Reporting

Banks and other payment settlement services must report gross annual receipts for each merchant. The income reporting applies to "any transaction in which a payment card is accepted as payment," according to the IRS. Banks and other financial service providers must report the total gross amount of credit card and debit card payments for the year for each merchant.

Exception for De Minimis Payments

No information report is required if: 

  • A merchant's total payment transactions for the year do not exceed $20,000 and
  • The total number of transactions does not exceed 200.

Tips for Credit Card Reporting

Small businesses should regularly review and update their bookkeeping and accounting practices to ensure that they can reconcile the information reports submitted by the banks.

Any discrepancies in reporting must be addressed so accurate tax returns can be filed with the IRS.

Further details regarding credit card and merchant account reporting are outlined in regulations issued by the Internal Revenue Service (REG-139255-08). Among other issues, the IRS details who is responsible for reporting, how gross amounts are calculated, and states that merchant payment firms can be required to withhold funds for backup withholding.

The IRS has also released instructions for Form 1099-K. Business owners and accountants should review this form to familiarize themselves with the format.

Keep Track of Chargebacks 

This law requires that banks report gross receipts, but merchants often have chargebacks. They might issue refunds or have debit card transactions where the customer receives cash back. Banks and other payment transaction services report only gross monthly and annual payments. Fees, chargebacks, refunds and other items like these are not be netted against gross amounts for IRS reporting purposes.

Businesses should have thorough accounting procedures in place to keep track of these items separately. In other words, if you're accustomed to recording only a net deposit from a merchant account, it would be wise to separate those net amounts into gross receipts and the associated fees and refunds so your internal financial reports can be more easily reconciled to Form 1099-K.

Payment Card Reporting Requires Merchant Identification

Merchants must provide their payment processor with the full legal name of their business, their address, and their taxpayer identification number so financial institutions can report credit and debit card receipts.

For most businesses, this will be their employer identification number or EIN. Payment processors may ask businesses to provide them with a Form W-9 to obtain this information.

Possible Backup Withholding Issues

Merchants who fail to provide their taxpayer identification number could become subject to backup withholding on their payments at a rate of 28 percent. Merchants should provide their card payment services provider with the name, address, and EIN to prevent backup withholding. Backup withholding can leave a business in severe financial straits. Business owners who are struggling with tax debts should work with their tax professional to develop a repayment strategy that prevents any withholding on their card payments.


  • Section 3091 of Housing Assistance Tax Act of 2008 (H.R. 3221)