A new tax enforcement measure that seems to target small businesses will require debit and credit-card payment processors to report to the IRS on the receipts being collected by their customers.
That means owners of retail stores, service companies, one-person enterprises and other small businesses can expect the taxing authorities to know just how much is being collected by VISA, MasterCard, DiscoverCard and other processors, from customers for each small company. The purpose is to make sure all transactions conducted with credit and debit accounts are reported to the IRS.
Scheduled to take affect in 2011, this law is actually tucked into the housing bill recently signed by President Bush.
It does more than just mandate that card processors collect information on all transactions they handle for small business and then report the sums for each business, using its Taxpayer Identification Number (TIN). For any transactions for which there is no corresponding TIN, the processors are required to withhold 28% of the total before releasing the proceeds of the transaction to the business entitled to the payment. Presumably, the sums withheld will be turned over to the IRS.
According to this legislation, third party processors, such as PayPal, are exempt from reporting electronic payments of any business when the payments don’t total $20,000, or when there are fewer than 200 transactions in a year.
The Republican Policy Committee estimates the law will result in an additional $9.8 billion in tax revenue over a decade. But small business organizations are seeking to have the provision repealed. One complaint is the expectation that card processors will raise merchant fees to compensate them for the extra work.
Posted on August 17, 2008 | 
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