Posted March 9, 2010 3:05 pm by with 5 comments

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Flying under the radar with your affiliate income is about to get a lot harder for US tax payers. Starting next year, the IRS will be tracking all online payments made through credit, debit and electronic payment processing like PayPal. The new 1099-K form will be provided by any bank or payment settlement company operating in those areas.

Even better, these forms will include only the gross amounts—i.e. the payments made excluding any fees these companies or other intermediaries may charge—or returns, chargebacks or refunds.. As most of us well know, a payment of $100 often doesn’t translate into a profit of $100, so it will be on the merchants’ shoulders to report all fees among other business expenses.

Naturally, the IRS is worried that online merchants aren’t reporting their income, either through ignorance or willful tax evasion. Reporting forms like the W-2 and other 1099s help tax payers to know what they have to pay taxes on (um, everything) and exactly how much they earned. (It’s a heck of a lot easier than going through your records yourself, but you might still have to to get the fees.)

According to Barbara Weltman for Auction Bytes,

All merchants who accept payments through credit cards, debit cards, gift cards and PayPal will receive information returns telling them – and the IRS – the gross amount of the merchant card transactions. This will be broken down month by month. While the form uses the word “card,” the IRS has made it clear that this is interpreted broadly to include third-party network transactions (i.e., PayPal).

There is at least one loophole: if you’re just not that good an online merchant. Small merchants, making $20,000 or less in 200 or fewer transactions, will not require 1099 reporting.

Ultimately, there probably won’t be an effect if you’re already reporting your online income accurately. Will the new laws affect you?

We are SO not tax lawyers or accountants, it’s not even funny. Please consult someone who is to learn about your tax responsibilities.

  • Once again love to understand how in the world they expect to do this.
    .-= Jaan Kanellis´s last blog ..Google’s Algorithm History by =-.

    • Um, it’s pretty clearly laid out. They’ll get PayPal and other merchant banks to issue a 1099 record of the monies coming into your account.

  • It won’t make us pay more taxes, as we honestly report our income already, but it’ll just be a duplicate data point that we have to reconcile. Recalculate all the fees, returns, etc and segment numbers correctly so everything matches. 😛

  • What this actually does is give our US Gestapo-style Government just one more avenue to come back and haunt us ignorant taxpayers. By ignorant, I dont mean stupid… I mean… the tax codes in the USA are SO complicated that it costs us dearly to get an accountant, JUST for protection!

    When will we just do away with all these INCOME taxes that require companies and people to file thousands of wasteful pages of crap every year, and go to a flat-tax, thats paid at the register?

    Charge me when I buy it… not when I earn it!
    .-= Mark´s last blog ..6 Best Practices with Product Review Sites =-.

  • This is only going to be a problem for affiliates who have not been operating like a real business; you know the little things like keeping track of income and expenses.
    .-= Gregg Brown´s last blog ..Local Search Tips – SEO for Small Business =-.