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Credit / Debit Cards to be Tracked by Jordan at Investing Blog

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I’m writing this article because 1) this has caused quite an uproar in internet circles, 2) a related issue, the changes to the 1099 form, remains the most popular post on this blog for months in a row. Hmm. Clearly, there are some people interested in who has access to their credit and debit card data.

HR 3221, already passed and made law, would require that all third-party payment processors turn over data regarding payments sent through any payment service. This includes Visa, MasterCard, Discover, American Express, as well as online gateways like Paypal, Amazon, Google Checkout, 2Checkout, etc.

Simply put, if money passes through it, the government now has a right to see it. The bill calls these “payment settlement entities,” so I imagine that any escrow or ecommerce website is part of this broad term. Oh, gift cards count, too.

Exemptions

Very few people, businesses, or entities will be able to avoid the new law, or its data-mining. According to the house text, there will be a small “de minimis” exemption for aggregate transactions of $20,000 or less and 200 total transactions.

Now, I suppose this all comes down to what the word “and” means. Will the IRS be made aware of merchants who complete aggregate annual transactions of $20,000 but do not cross 200 total transactions? Or will the IRS be notified only if both clauses are breached (someone receives more than $20,000 through more than 200 transactions). From what I’ve read, it appears that you must receive more than $20,000 and do more than 200 transactions.

The limit was previously $10,000 and 200 transactions, though amendments were passed to increase it. Currently, a fight is going on to get rid of the clause all together however since the laws are expected to generate nearly $10 billion in new income per year, it is unlikely it will be struck down.

Eventually, by December 31, 2011, the IRS will begin withholding taxes from all payments subject to a business’s or business owner’s tax rate. If no TIN or SSN (tax identification number, social security number) are provided, withholding will be an automatic 28% of all transactions.

Business owners will have to reconcile their sales with IRS data, accounting for expenses and chargebacks along the way. All in all, it seems like a pain in the neck…because it is.

Tying it to the 1099 fiasco

I was recently made aware that business transactions of more than $600 would not require a 1099 since, as part of this HR 3221 bill, the transaction would already be recorded. Insanity, huh?

Anyway, if you feel like you could do a better job of digging through legalese then, by all means, slave away.

Summary text from HR 3221

Payment Card and Third Party Network Information Reporting. The proposal requires information reporting on payment card and third party network transactions. Payment settlement entities, including merchant acquiring banks and third party settlement organizations, or third party payment facilitators acting on their behalf, will be required to report the annual gross amount of reportable transactions to the IRS and to the participating payee. Reportable transactions include any payment card transaction and any third party network transaction. Participating payees include persons who accept a payment card as payment and third party networks who accept payment from a third party settlement organization in settlement of transactions.

A payment card means any card issued pursuant to an agreement or arrangement which provides for standards and mechanisms for settling the transactions. Use of an account number or other indicia associated with a payment card will be treated in the same manner as a payment card. A de minimis exception for transactions of $10,000 or less and 200 transactions or less applies to payments by third party settlement organizations. The proposal applies to returns for calendar years beginning after December 31, 2010. Back-up withholding provisions apply to amounts paid after December 31, 2011. This proposal is estimated to raise $9.802 billion over ten years.

About Jordan

Jordan is the web master of www.investingblog.org, a site dedicated to skillful investing, news and recent trends. You can read the original article here.

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