1099-K, Merchant Card and Third Party Payments

2012

Department of the Treasury
Internal Revenue Service

Instructions for
Form1099-K
Payment Card and Third Party Network Transactions
Section references are to the Internal Revenue Code unless
otherwise noted.

What’s New
Truncating payee’s identification number on paper
payee statements. Notice 2011-38 allows filers of this
form to truncate a payee’s identification number (social
security number (SSN), individual taxpayer identification
number (ITIN), or adoption taxpayer identification number
(ATIN)) on paper payee statements for tax years 2011
and 2012. Do not truncate an employer identification
number (EIN) used by the payee. See part M in the 2012
General Instructions for Certain Information Returns.
Type of transactions. We added a box for you to
indicate the type of transactions you are reporting, either
payment card or third party network transactions.
Box 3, Number of purchase transactions. Providing
this information for tax year 2012 is optional.

Reminders
General Instructions. In addition to these specific
instructions, you should also use the 2012 General
Instructions for Certain Information Returns. 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 at IRS.gov or by
calling 1-800-TAX-FORM (1-800-829-3676).
Frequently asked questions. To find frequently asked
questions (FAQs) about Form 1099-K reporting, go to
IRS.gov and enter “new payment card reporting” in the
search box.
How to get the latest information. If there are changes
to the 2012 tax laws that affect this form, you can find
them at www.irs.gov/form1099k.

Specific Instructions
A payment settlement entity (PSE) must file Form
1099-K, Payment Card and Third Party Network
Transactions, 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
Jul 06, 2012

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
(TPSO), that is, the central organization that has the
contractual obligation to make payments to participating
payees of third party network transactions.
Note. Automated clearing houses, healthcare
networks, and accounts payable departments do not
qualify as TPSOs and do not report under section
6050W.
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
TPSO 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

Cat. No. 54721E

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 must file Form 1099-K for payments made
outside the United States to an offshore account if any of
the following apply:
• There is a U.S. residential or correspondence address
associated with the participating payee;
• The PSE has standing instructions to direct the
payment to a bank account maintained in the United
States;
• The participating payee submits for payment in U.S.
dollars; or
• The PSE knows or has reason to know that the
participating payee is a U.S. person.
A PSE is not required to file Form 1099-K for
payments made outside the United States to an offshore
account in the circumstances described in the preceding
paragraph if the PSE does not know that the payee is a
U.S. person and the PSE obtains from the payee a Form
W-8BEN, Beneficial Owner’s Certificate of Foreign Status
for U.S. Tax Withholding; or Form W-8ECI, Foreign
Person’s Claim of Income Effectively Connected with the
Conduct of a Trade or Business in US; or documentary
evidence establishing the payee’s non-U.S. status; or a
suitable substitute form as described in Notice 2011-71,
available at www.irs.gov/irb/2011-37_IRB/ar08.html. The
W-8 forms (or the suitable substitutes) must be collected
by the PSE by the later of January 1, 2012, or 90 days
after the date on which the PSE enters into the
contractual obligations with participating payee. The W-8
forms (or suitable substitutes) may be relied upon only
when the requirements of Regulations sections
1.1441-7(b)(5)(i)(A) or (B) and (ii) are satisfied.
Documentary evidence may be relied upon only when the
requirements of Regulations sections 1.1441-7(b)(7) and
1.1441-7(b)(8)(ii) and (iii) are satisfied.
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.
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).

!

CAUTION

A renewal of a contractual obligation will not result
in a new contractual obligation unless there is a
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 PSE that is a non-U.S. payer that has reason to
know but not actual knowledge that a participating payee
is a U.S. person will not be required to file Form 1099-K if
the PSE obtains from the payee a Form W-8 that
satisfies the requirements of Regulations section
1.1441-7(b)(5)(i)(A) or (B) and (ii), or documentary
evidence that satisfies the requirements of Regulations
sections 1.1441-7(b)(7) and 1.1441-7(b)(8)(ii) and (iii).
A PSE may accept a substitute form, as described in
Notice 2011-71, in lieu of Form W-8BEN so that a
participating payee can certify its non-U.S. status.
Documentary evidence, described in Regulations section
1.6049-5(c)(1), submitted to establish the identity of the
payee and the status of that person as a foreign person
remains valid until the earlier of the last day of the third
calendar year following the year in which the
documentary evidence is provided to the withholding
agent or the day that a change in circumstances occurs
that makes any information on the documentary evidence
incorrect.
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.
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Instructions for Form 1099-K (2012)

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
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.

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

Who Must File
Every PSE, which in any calendar year makes one or
more payments, or any party which submits instructions
to transfer funds to the account of a participating
merchant, in settlement of reportable payment
transactions, must file an information return (Form
1099-K) with respect to each participating payee for that
calendar year.

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 (bottom) box if you are an EPF or other third
party.
If you are an EPF or other third party, 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.

Multiple PSEs. If two or more persons qualify as
PSEs for the same reportable transaction, the PSE that
submits the instruction to transfer funds 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.

Transactions reported check boxes
Check the first (top) box if you are reporting payment
card transactions on this form. Check the second
(bottom) box if you are reporting third party network
transactions on this form.
If you are reporting payments to the same payee that
include both payment card and third party network
transactions, you must file a separate Form 1099-K
reporting the gross amount from each type.

Electronic payment facilitator. If a PSE contracts
with an electronic payment facilitator (EPF) or other third
party 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.

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 2012 General Instructions
for Certain Information Returns.

Box 1. Gross payment card/third party
network transactions

See part O in the 2012 General Instructions for Certain
Information Returns for more information on penalties.

Enter in box 1 the gross amount of the total reportable
payment card/third party network transactions 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 TPSO 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).

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 2012 General Instructions for
Certain Information Returns.

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 2012 General Instructions for Certain
Information Returns.
Instructions for Form 1099-K (2012)

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Box 2. Merchant category code

Box 3. Number of transactions

Enter the 4-digit merchant category code (MCC) used by
the payment card industry to classify the payee for the
payment card transactions reported on this Form 1099-K.
If you use an industry classification system other than, or
in addition to, MCCs, assign to each payee an MCC that
most closely corresponds to the description of the
payee’s business.
Note. If you are a TPSO or other type of PSE that
does not use MCCs to classify payees for your trade or
business you should not complete this box.
If a payee has receipts classified under more than one
MCC, you may either:
• File separate Forms 1099-K reporting the gross
receipts for each MCC, or
• File a single Form 1099-K reporting total gross receipts
and the MCC which corresponds to the largest portion of
the total gross receipts.

Enter the number of purchase transactions (not including
refund transactions) processed through the payment
card/third party payer network. Reporting this information
is optional. The PSE is not required to complete this box
for 2012.

Box 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.

Boxes 6 through 8.
Reserved.

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Instructions for Form 1099-K (2012)