Last week, I introduced six initiatives AP and Shared Services could implement to drive organizational efficiencies in 2011. This week, I’d like to focus on the 1099-K reporting changes that went into effect in January of this year.
This change was part of the Housing Assistance Tax Act of July, 2008. It was better known for providing credits to first-time home buyers, but it also created the new 1099-K tax form, which shifts the 1099 reporting for companies that use credit cards to pay suppliers. Under this new ruling, starting in 2011, all financial institutions that process credit or debit card payments will be responsible for sending the 1099 documentation of that year’s transactions to both their clients and the IRS. Before this ruling, the company that received the funds was required to handle the reporting.
The ruling will only impact merchants that have over 200 payments that total over $20,000, but it will have enormous impact on companies of all sizes.
First, AP departments that use automated systems to populate spend files and create 1099 reports will need to remove those transactions that now fall under the responsibility of the third-party funding agent.
Second, it will increase the 1099 reporting responsibilities of all institutions that act as a funding agent for another company. This would include both financial services companies (banks, credit card companies, etc.) as well as outsourced AP companies. As of January 31, 2011, these third party companies will be responsible for collecting W9s and producing the 1099 reports next year.
The reasons behind these changes actually make a lot of sense. It is intended to shift the task of producing 1099 reports to the institutions that actually own the relationship with the entity that makes the payment. In the case of a credit card, the financial services company holds the cardholder information, not the merchant, which is necessary to obtain accurate reporting information.
For a deeper discussion about how to prepare for the impact of 1099 reporting laws, visit the Lavante 1099 resource center.