1099-K, Merchant Card and Third Party Payments

2011

Department of the Treasury
Internal Revenue Service

Instructions for
Form1099-K
Section references are to the Internal Revenue Code unless
otherwise noted.

What’s New
Instructions for Form 1099-K. These instructions
implement new reporting requirements under Regulations
section 1.6050W-1 effective for returns for calendar years
beginning after 12/31/2010.
New Form 1099-K. Payment settlement entities may
have to report merchant card payments and third party
network payments on new Form 1099-K instead of Form
1099-MISC. See the separate instructions for Form
1099-MISC.

Reminder
In addition to these specific instructions, you should also
use the 2011 General Instructions for Certain Information
Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498,
and W-2G). Those general instructions include
information about the following topics.
• Backup withholding.
• Electronic reporting requirements.
• Penalties.
• Who must file (nominee/middleman).
• When and where to file.
• Taxpayer identification numbers.
• Statements to recipients.
• Corrected and void returns.
• Other general topics.
You can get the general instructions from IRS.gov or
by calling 1-800-TAX-FORM (1-800-829-3676).

Specific Instructions
A payment settlement entity (PSE) must file Form
1099-K, Merchant Card and Third Party Network
Payments, for payments made in settlement of reportable
payment transactions for each calendar year. A PSE
makes a payment in settlement of a reportable payment
transaction, that is, any payment card or third party
network transaction, if the PSE submits the instruction to
transfer funds to the account of the participating payee to
settle the reportable payment transaction.
A PSE is a domestic or foreign entity that is a
merchant acquiring entity, that is, a bank or other
organization that has the contractual obligation to make
payment to participating payees in settlement of payment
card transactions; or a third party settlement
organization, that is, the central organization that has the
contractual obligation to make payments to participating
payees of third party network transactions.
A participating payee is any person, including any
governmental unit (and any agency or instrumentality of a
governmental unit) who accepts a payment card, or any
account number or other indicia associated with a
payment card, as payment or accepts payment from a

third party settlement organization in settlement of a third
party network transaction.
A payment card is any card, including any
stored-value card (having prepaid value, including gift
cards), issued according to an agreement or
arrangement that provides for all of the following.
• One or more issuers of the cards.
• A network of persons unrelated to each other, and to
the issuer, who agree to accept the cards as payment.
• Standards and mechanisms for settling the
transactions between the merchant acquiring entities and
the persons who agree to accept the cards as payment.
A third party payment network is any agreement or
arrangement that provides for the following.
• The establishment of accounts with a central
organization by a substantial number of providers of
goods or services who are unrelated to the organization
and who have agreed to settle transactions for the
provision of the goods or services to purchasers
according to the terms of the agreement or arrangement.
• Standards and mechanisms for settling the
transactions.
• Guarantee of payment to the persons providing goods
or services (participating payees) in settlement of
transactions with purchasers pursuant to the agreement
or arrangement.
A third party payment network does not include any
agreement or arrangement that provides for the issuance
of payment cards.
Unrelated means any person who is not related to
another person within the meaning of section 267(b)
using the rules of 267(c) and (e)(3), and 707(b)(1).
Exception for payments made by U.S. payers or
middlemen to foreign payees after 2010. For
payments under contractual obligations entered into after
December 31, 2010, a PSE that is a person as described
in Regulations section 1.6049-5(c)(5) as a U.S. payer or
U.S. middleman is not required to file Form 1099-K for
payments to a participating payee with a foreign address
as long as, prior to payment, the PSE has documentation
on which the PSE may rely to treat the payment as made
to a foreign person according to Regulations section
1.1441-1(e)(1)(ii) (substituting payer for the term
withholding agent and without regard to the limitations to
amounts subject to withholding requirements of chapter 3
of the Code and its regulations).
A PSE does not have to file Form 1099-K for
payments made outside the United States (within the
meaning of Regulations section 1.6049-5(e)) to an
offshore account (as defined in Regulations section
1.6049-5(c)(1)) of a participating payee with only a
foreign address if the name of the participating payee
indicates that it is a per se corporation under Regulations
section 301.7701-2(b)(8)(i) and the PSE does not know
or have reason to know that the participating payee is a
U.S. person.

Cat. No. 54721E

A PSE may apply the grace period rules under
Regulations section 1.6049-5(d)(2)(ii) for payments to a
participating payee with only a foreign address without
regard to whether the amounts paid are described in
Regulations section 1.1441-6(c)(2) or are reportable
under Code sections 6042, 6045, 6049, or 6050N.
Exception for payments by U.S. payers to foreign
payees prior to 2011. For payments under contractual
obligations entered into before January 1, 2011, a PSE
that is a U.S. payer or U.S. middleman is not required to
file a Form 1099-K for a payment to a participating payee
with a foreign address as long as the payer does not
know or have reason to know that the participating payee
is a U.S. person.
A foreign address means any address that is not
within the United States (the States and the District of
Columbia).

whether payments are subject to reporting under section
6050W, rather than sections 6041 or 6041A, the de
minimis threshold, discussed later under Box 1, is
disregarded.

Who Must File
Every PSE, which in any calendar year makes one or
more payments in settlement of reportable payment
transactions, must file an information return (Form
1099-K) with respect to each participating payee for that
calendar year.
Multiple PSEs. If two or more persons qualify as
PSEs for the same reportable transaction, the PSE who
actually makes payment must file the return. However,
the PSE obligated to file may designate another person
to file the return, including the PSE not making payment,
if the parties agree in writing. If the designated person
fails to timely file the return, the party who makes
payment is liable for any applicable penalties under
sections 6721 and 6722.
Electronic payment facilitator. If a PSE contracts
with an electronic payment facilitator (EPF) or other third
party payer (TPP) to make payments in settlement of
reportable payment transactions on behalf of the PSE,
the facilitator or other third party must file Form 1099-K in
lieu of the PSE. The facilitator is not required to have any
arrangement or agreement with the participating payee.
Payments need not come from the facilitator’s account.
The facilitator need only submit instructions to transfer
funds to the account of the participating payee. The PSE
can file Form 1099-K by designation if the parties agree
in writing; however, the designation does not relieve the
facilitator from liability for any applicable penalties under
sections 6721 and 6722 for failure to comply with the
information reporting requirements.
See part O in the 2011 General Instructions for Certain
Information Returns for more information on penalties.
Aggregated payees. If you receive payments from a
PSE on behalf of one or more participating payees and
you distribute such payments to one or more participating
payees, you are:
• The participating payee with respect to the PSE who
sent you the payment(s), and
• The PSE with respect to the participating payees to
whom you distribute the payments.
For more information on nominee/middleman
reporting, see part A in the 2011 General Instructions for
Certain Information Returns.

A renewal of a contractual obligation will not result
in a new contractual obligation unless there is a
CAUTION
material modification to the contractual obligation.
Exception for payments made by non-U.S. payers
or middlemen to foreign payees. A PSE that is not
described as a U.S. payer or U.S. middleman in
Regulations section 1.6049-5(c)(5) is not required to file a
Form 1099-K for payment to a participating payee that
does not have a U. S. address as long as the PSE does
not know or have reason to know that the participating
payee is a U.S. person. If the participating payee has any
U.S. address, the PSE may treat the participating payee
as a foreign person only if the PSE has documentation
on which the PSE may rely to treat the payment as made
to a foreign person according to Regulations section
1.1441-1(e)(1)(ii).
A U. S. address is any address that is within the
United States (the States and the District of Columbia).
Non-reportable transactions. The following
transactions are non-reportable under section 6050W.
• A withdrawal of funds at an automated teller machine
(ATM) via payment card, or a cash advance or loan
against the cardholder’s account.
• A check issued in connection with a payment card that
is accepted by a merchant or other payee.
• Any transaction in which a payment card is accepted
as payment by a merchant or other payee who is related
to the issuer of the payment card.
Conversion of amounts paid in foreign currency.
When a payment is made or received in a foreign
currency, the U.S. dollar amount must be determined by
converting the foreign currency into U.S. dollars on the
date of transaction at the spot rate (as defined in
Regulations section 1.988-1(d)(1)) or according to a
reasonable spot rate convention, such as a month-end
spot rate or a monthly average spot rate. The convention
must be used consistently for all non-dollar amounts
reported and from year to year. The convention cannot
be changed without the consent of the Commissioner or
his or her delegate.
Reporting under sections 6041, 6041A, and 6050W.
Payments made by payment card or through a third party
payment network after December 31, 2010, that
otherwise would be reportable under sections 6041
(payments of $600 or more) or 6041A(a) (payments of
remuneration for services and certain direct sales) and
6050W are reported under section 6050W and not
sections 6041 or 6041A. For purposes of determining

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Statements to Recipients
If you are required to file Form 1099-K, you must provide
a statement to the recipient. For more information about
the requirement to furnish a statement to each recipient,
see part M in the 2011 General Instructions for Certain
Information Returns.
Furnishing statements electronically. Statements
may be furnished to recipients electronically in lieu of a
paper format. See Regulations section 1.6050W-2(a) for
further information.

Filer’s name, address, telephone number,
and federal identification number boxes
Enter your name, address (including street address, city,
state, and ZIP code) and telephone number in the box in
the upper left corner. The telephone number must allow a
payee to reach a person knowledgeable about the
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Instructions for Form 1099-K (2011)

payments reported on the form. Enter your federal
identification number in the top box immediately to the
right.

for the calendar year. Gross amount means the total
dollar amount of total reportable payment transactions for
each participating payee without regard to any
adjustments for credits, cash equivalents, discount
amounts, fees, refunded amounts or any other amounts.
The dollar amount of each transaction is determined on
the date of the transaction.
Exception for de minimis payments. A third party
settlement organization is required to report any
information concerning third party network transactions of
any participating payee only if for the calendar year:
• The gross amount of total reportable payment
transactions exceeds $20,000, and
• The total number of such transactions exceeds 200.
For examples of reportable payment transactions,
including responsible filing parties, see Regulations
section 1.6050W-1(e).

Filer check boxes
Check the first (top) box in the section immediately below
the FILER’S name, street address, city, state, ZIP code,
and telephone number box if you are a PSE. Check the
second box (bottom) if you are an EPF or TPP.
If you are an EPF or TPP, enter the PSE’S name and
telephone number in the box above the account number
box at the bottom left of the form. The telephone number
must allow a payee to reach a person knowledgeable
about the payments reported on the form.

Account number
The account number is required if you have multiple
accounts for a recipient for whom you are filing more than
one Form 1099-K. Additionally, the IRS encourages you
to designate an account number for all Forms 1099-K
that you file. See part L in the 2011 General Instructions
for Certain Information Returns.

Boxes 2 through 4.
Reserved.

Boxes 5a through 5l.
Enter in the appropriate box the gross amount of the total
reportable payment transactions for each month of the
calendar year.

Box 1. Gross amount of merchant card/third
party network payments
Enter in box 1 the gross amount of the total reportable
merchant card/third party network payment transactions

Instructions for Form 1099-K (2011)

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