The Housing Assistance Act of 2008 included a provision of the Internal Revenue Code that would affect companies that process credit and debit card payments. This would require companies like PayPal to issue a new 1099, Form 1099-K Merchant Card and Third Party Network Payments, to merchants with greater than $20,000 in sales composed of more than 200 transactions.
The Internal Revenue Service (IRS) believes that small companies may not have been reporting all of their revenue from third party payment services like PayPal. The issuance of the new 1099-K is designed to help eliminate the possibility of small companies not reporting all of their revenue. The form 1099-K will likely create a headache for the issuing parties as well as the recipients. This provision will require more paperwork for the IRS and the accounting staff of the issuing parties. The 1099-K will only report gross revenues and the receiving parties will have to adjust for fees or sales tax to reconcile to the amount received in order to have an accurate tax return filed. Although the merchant criteria may not pertain to you and you will not receive a 1099-K, the IRS still requires you to report your earnings from the sale of items on websites like eBay and Etsy.
Be prepared, there will likely be issues with the first year of this form being issued. If you are on the issuing or receiving side of a 1099-K for 2011 and have questions regarding this new provision please feel free to contact me.