Form 1099-K, Payment Card and Third Party Network Transactions

2016

Department of the Treasury
Internal Revenue Service

Instructions for
Form 1099-K
Payment Card and Third Party Network Transactions
Section references are to the Internal Revenue Code
unless otherwise noted.

Future Developments

For the latest information about developments related to
Form 1099-K and its instructions, such as legislation
enacted after they were published, go to www.irs.gov/
form1099k.

Reminder

In addition to these specific instructions, you should also
use the 2016 General Instructions for Certain Information
Returns. Those general instructions include information
about the following topics.
Who must file (nominee/middleman).
When and where to file.
Electronic reporting requirements.
Corrected and void returns.
Statements to recipients.
Taxpayer identification numbers.
Backup withholding.
Penalties.
Other general topics.
You can get the general instructions at www.irs.gov/
form1099k.
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.

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 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. Healthcare networks, in-house accounts payable
departments, and automated clearing houses do not
qualify as TPSOs and do not report under section 6050W.
Nov 10, 2015

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 sections 267(c) and (e)(3), and 707(b)(1).
Exception for payments made outside the United
States by U.S. payers or middlemen to offshore
accounts 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).

Cat. No. 54721E

participating payee (including information required to be
obtained or reviewed under procedures required to be
established under and compliant with 31 CFR §
1020.220). However, a PSE must file Form 1099-K for
payments made 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 payments in U.S.
dollars.
The PSE knows or has reason to know that the
participating payee is a U.S. person.
A PSE that obtains a valid Form W-8 or documentary
evidence establishing the payee's non-U.S. status and
does not know the payee is a U.S. person is not required
to file Form 1099-K even if any of the circumstances
described in the preceding paragraph are present. For
more information on this exception, see Notice 2012-2,
available at www.irs.gov/irb/2012-45_IRB/ar11.html.
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).

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.
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,
Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding and Reporting
(Individuals); or Form W-8ECI, Certificate of Foreign
Person’s Claim That Income Is Effectively Connected
With the Conduct of a Trade or Business in the United
States; 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 no later than 90
days after the date on which the PSE enters into the
contractual obligations with the participating payee. The
W-8 forms (or suitable substitutes) and documentary
evidence may be relied upon only when the requirements
described in Notice 2011-71 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 described in Notice 2012-2) 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 made by U.S. payers or
middlemen to accounts maintained outside the
United States after 2010. A PSE is also not required to
file Form 1099-K in certain circumstances for payments
made to an account maintained outside the United States.
This exception only applies if the PSE is a U.S. payer
making a payment to an account maintained outside the
United States by the PSE, or, if the PSE does not maintain
an account for the payee, to another financial institution
maintaining the account outside the United States. To
apply this exception, the PSE must also reasonably
determine that the participating payee is doing business
outside the United States based on all the information
obtained or reviewed in connection with the establishment
or maintenance of the contractual relationship with the

A renewal of a contractual obligation will not
result in a new contractual obligation unless there
CAUTION
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 or documentary
evidence that satisfies the requirements described in
Notice 2011-71.
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 Notice 2011-71,
submitted to establish the identity of the payee and the
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Instructions for Form 1099-K (2016)

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.

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.

See part O in the 2016 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 2016 General Instructions for Certain
Information Returns.

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.

Statements to Payees

If you are required to file Form 1099-K, you must furnish a
statement to the payee.
Truncating recipient’s identification number on
payee statements. Pursuant to Treasury Regulations
section 301.6109-4, all filers of this form may truncate a
payee’s identification number (social security number
(SSN), individual taxpayer identification number (ITIN),
adoption taxpayer identification number (ATIN), or
employer identification number (EIN)) on payee
statements. Truncation is not allowed on any documents
the filer files with the IRS. A filer's identification number
may not be truncated on any form. See part J in the 2016
General Instructions for Certain Information Returns.

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 1a, is disregarded.

Furnishing statements electronically. Statements may
be furnished to payees electronically in lieu of a paper
format. See Regulations section 1.6050W-2(a) for further
information.
For more information about the requirement to furnish a
statement to each payee, see part M in the 2016 General
Instructions for Certain Information Returns.

Who Must File

Every PSE or other 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.
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 entity with the
responsibility to file 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 to make payments in settlement of reportable
payment transactions on behalf of the PSE, the facilitator

Instructions for Form 1099-K (2016)

2nd TIN Not.

You may enter an “X” in this box if you were notified by the
IRS twice within 3 calendar years that the payee provided
an incorrect taxpayer identification number (TIN). If you
mark this box, the IRS will not send you any further
notices about this account.
However, if you received both IRS notices in the same
year, or if you received them in different years but they
both related to information returns filed for the same year,
do not check the box at this time. For purposes of the
two-notices-in-3-years rule, you are considered to have
received one notice and you are not required to send a
second “B” notice to the taxpayer on receipt of the second

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amount of each transaction is determined on the date of
the transaction.

notice. See part N in the 2016 General Instructions for
Certain Information Returns for more information.

TIP

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).

For information on the TIN Matching System
offered by the IRS, see the 2016 General
Instructions for Certain Information Returns.

FILER's Name, Address, Telephone Number,
and Federal Identification Number Boxes

Enter the name, address (including street address, city or
town, state or province, country, and ZIP or foreign postal
code) and telephone number of the entity with the filing
requirement (payer) 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 the federal identification number of the
entity with the filing requirement (payer) in the top box
immediately to the right.

Box 1b. Card Not Present Transactions

Enter in box 1b the gross amount of the total reportable
payment card/third party network transactions for the
calendar year where the card was not present at the time
of the transaction or the card number was keyed into the
terminal. Typically, this relates to online sales, phone
sales, or catalogue sales. 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.

FILER Check Boxes

Check the first (top) box in the section immediately below
the FILER'S name, street address, city or town, state or
province, country, ZIP or foreign postal code, and
telephone number box if the entity with the filing
requirement (payer) is a PSE. Check the second (bottom)
box if the entity with the filing requirement (payer) is an
EPF or other third party.

Box 2. Merchant Category Code

If the entity with the filing requirement (payer) is 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.

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 or the entity on whose behalf you are filing uses 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.

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.

Note. If you or the entity on whose behalf you are filing is
a TPSO or does not use any industry classification system
for its payees, 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.

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.

Account Number

The account number is required if you have multiple
accounts for a payee 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 2016 General Instructions for
Certain Information Returns.

Box 3. Number of Payment Transactions

Enter the number of payment transactions (not including
refund transactions) processed through the payment card/
third party payer network.

Box 4. Federal Income Tax Withheld

Box 1a. Gross Payment Card/Third Party
Network Transactions

Enter backup withholding. Persons who have not
furnished their taxpayer identification number to you in the
manner required are subject to backup withholding on
payments required to be aggregately reported in box 1a.

Enter in box 1a 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

A payment made by a TPSO is a reportable payment
potentially subject to section 3406 backup withholding
only if the payee has received payment from the TPSO in
more than 200 transactions (the monetary threshold is not
considered for this purpose) within a calendar year. There
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Instructions for Form 1099-K (2016)

are no limiting thresholds for payments made in
settlement of payment card transactions that are subject
to section 3406 backup withholding.
For more information on backup withholding, including
the applicable rate, see part N in the 2016 General
Instructions for Certain Information Returns.

department. See Publication 1220 for more information
regarding the Combined Federal/State Filing Program.
They are provided for your convenience only and need
not be completed for the IRS. Use the state information
boxes to report payments for up to two states. Keep the
information for each state separated by the dash line. If
you withheld state income tax on this payment, you may
enter it in box 8. In box 6, enter the abbreviated name of
the state. In box 7, enter the filer's state identification
number. The state number is the filer's identification
number assigned by the individual state.

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.

If a state tax department requires that you send them a
paper copy of this form, use Copy 1 to provide information
to the state tax department. Give Copy 2 to the payee for
use in filing the payee's state income tax return.

Boxes 6 Through 8. State Information

These boxes may be used by filers who participate in the
Combined Federal/State Filing Program and/or who are
required to file paper copies of this form with a state tax

Instructions for Form 1099-K (2016)

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