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The following is an overview of Internal Revenue Code Section 6050W and the steps Groupon is required to take to comply with this law.
The IRS requires companies such as Groupon which process payments on behalf of others to file IRS Form 1099-K, reporting all credit card transactions for merchants whose sales amount and volume exceed certain thresholds each year. To ensure accurate reporting and avoid mandatory withholding of payments in the tax years, merchants must verify their legal name and Taxpayer Identification Number (TIN) name on file with Groupon.
Verify Taxpayer Identification Number (TIN), Legal Name and Other merchant Information
Groupon must have your accurate TIN and legal name on file at all times. If we do not have a validated TIN and legal name on file, we will cease all payments to you until we receive that information (this process started January 1, 2013). If you are an incorporated business, your TIN is the Federal Employer Identification Number given to you by the government. If you are sole proprietor or d/b/a, your TIN is your Social Security Number. Learn more about TINs here .
IRC SECTION 6050W REQUIREMENTS
What does IRC Section 6050W require?
What happens if a merchant does not provide its business Taxpayer Identification Number (TIN) to Groupon?
A business without a validated TIN and legal name on file will cease to receive all payments until we receive that information. If we do not promptly receive valid TIN information, we will be required to remit 28% of the gross sales on your features directly to the IRS.
FORM 1099-K QUESTIONS
What is the Difference between a Form 1099-K and a Form 1099-Misc?
Though they sound alike, these forms are completely different. A Form 1099-Misc is what many businesses use to report miscellaneous income, like a W2 but for contractors or other non-W2 employees. The Form 1099-K is not a measure of your income, but rather is a measure of the gross credit card transactions that were processed on your behalf, including refunded amounts. You should speak with your accountant about how to account for your net income
Does Groupon or the merchant issue a Form 1099-K?
Groupon issues the Form 1099-K. You as the merchant don’t have to worry about submitting any 1099-K data to the IRS, unless specifically requested by the IRS. Please contact your tax advisor for any questions relating to your tax obligations.
Does Form 1099-K report a merchant’s unadjusted gross sales amount or earned payment amount?
The amount reported on Form 1099-K is the merchant’s gross payments processed, not the amount that you’re paid. The report shows the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees, or refunds. The amount you see on your 1099-K includes amounts paid to the merchant and amounts retained by Groupon such as advertising fees. We understand that this creates some confusion, but as mentioned, we are required by the IRS to report it in this fashion.
Why do the dollar amounts reported on the 1099-K differ from the amounts Groupon actually paid me?
The 1099-K reports all gross sales, not just the amounts that you were paid. For example, if you sold $100 worth of vouchers on Groupon.com and had a 50% margin, your 1099-K would show total sales of $100, even though you were only paid $50 for those vouchers.
Does the amount on my 1099-K change if a Groupon is refunded?
No. When a Groupon is purchased, that sale becomes part of the merchant’s unadjusted gross sales for the year. Even if a refund is later issued, the unadjusted gross sales amount does not change.
I ran a deal with Groupon in prior December year, but was not paid until January the next year. When are the payments reported?
The 1099-K does not report amounts paid to the merchant. Rather, it reports the total amount of credit card transactions processed on behalf of a merchant in a given year. This means the reported amount corresponds to the year that Groupon processed the credit card on behalf of the merchant. In all likelihood, this means it would be reported on the 1099-K.
If a merchant has multiple seller accounts with the same Tax Identification Number (TIN) and they exceed the thresholds when the account totals are combined, will a Form 1099-K be issued for the combined seller accounts?
Yes. Unadjusted gross sales and transaction volumes are consolidated for all accounts that have the same Tax Identification Number (TIN). Please assist Groupon by providing your TIN for each of your seller accounts regardless of thresholds. This will help us ensure that we report all accounts with the same TIN on one Form 1099-K.
When will Groupon mail Form 1099-K to merchants?
Groupon complies with the IRS requirement to send Form 1099-K to qualified recipients by January 31 of each year. Although the forms will be mailed by January 31, it may take some time for the mailing to be delivered to the recipient.
When will Groupon file Form 1099-K with the IRS?
Groupon will file all Form 1099-Ks with the IRS prior to March 31 for each tax year.
How do I find out how much I was actually paid by Groupon and when those payments occurred?
In addition to your own internal records and bank statements showing deposits and checks from Groupon, your merchant center account contains some information on the tax year payments sent to your business. Please consult the Merchant Center before contacting your account representative.
If there is an error on the Form 1099-K, who should the merchant contact?
Email 1099K@groupon.com or call your merchant support representative.
MERCHANT STEPS
What steps should a merchant take with regard to IRC Section 6050W and Form 1099-K?
To ensure accurate reporting and avoid potential US Federal Income Tax withholding in the tax year, a merchant should verify that their correct legal name and Taxpayer Identification Number (TIN) are on file with Groupon. A merchant can verify this information at any time in the Merchant Center. Merchants should contact a tax, legal or professional adviser to understand the impact of Form 1099-K reporting on their business. Information herein does not constitute tax, legal or other professional advice and must not be used as such.
What happens if a merchant’s legal name and Taxpayer Identification Number (TIN) on file with Groupon do not match their legal name and TIN file with the IRS?
If a merchant’s legal name and TIN on file with Groupon do not match what the IRS has on file (typically from a Form SS-4, Application for Employer Identification Number), the IRS will issue Groupon a “B Notice.” Upon receipt of a B Notice, Groupon will cease all payments to the merchant and attempt to correct the name and TIN on file by contacting the merchant. If the merchant does not respond in a timely manner with the necessary information, Groupon will be forced to remit 28% of the gross merchant sales directly to the IRS.
GROUPON’S STEPS
What are Groupon’s responsibilities under IRC Section 6050W?
Groupon is required to comply with IRC Section 6050W including
1. Collecting each merchant’s legal name and Tax Identification Number (TIN), including W-8BEN information for foreign businesses.
2. Furnishing a Form 1099-K to each merchant that has more than $20,000 in gross credit card transactions and sales of 200 or more units during the preceding year every January, and filing a copy of the information with the IRS every March.
3. Beginning January 1, 2013, cease all merchant payments and remit to the IRS 28% of gross merchant sales for any merchant who:
Will a merchant receive a 1099-K if the merchant meets only one of the reporting thresholds?
No. A merchant has to exceed both thresholds ($20,000 in gross credit card transactions and 200 sales) in a calendar year before a Form 1099-K will be filed.
Will Groupon keep any portion of the US Federal Income Tax withholding from a merchant?
No. Groupon will not keep any of the US Federal Income Tax withholding tax withheld from a merchant. All backup withholding taxes will be promptly remitted to the IRS as required by law. Merchants will need to work with the IRS to recover any withholding remitted to the IRS by Groupon.
What do I do if Groupon is forced to withhold my payments?
Contact your sales representative or account manager immediately and provide corrected TIN information. We’ll verify that data and get your payments back on track right away.
REPORTING DEFINITIONS
How is gross amount defined in IRC Section 6050W?
IRC Section 6050W defines gross amount as the total dollar amount of aggregated transactions in which a payment card is accepted as payment for each merchant without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. For example, if you sold $100 worth of vouchers on Groupon.com and had a 50% margin, your 1099-K would show total sales of $100, even though you were only paid $50 for those vouchers.
How is a third party settlement entity defined in IRC Section 6050W?
A third party settlement organization means the central organization which has the contractual obligation to make payment to participating payees of third party network transactions. In this case, Groupon is the payment settlement entity (“PSE”).
What is a Federal Taxpayer Identification Number (TIN)?
A Federal Taxpayer Identification Number (TIN) is an identification number used by the IRS in the administration of federal tax laws. In most cases a TIN is either a social security number (SSN) or employer identification number (EIN).
How is legal name defined?
A merchant’s legal name is typically the name the merchant provided to the IRS when it filed a Form SS-4, Application for Employer Identification Number, and that it uses to file its federal tax returns. In the case of a sole proprietorship, the legal name is the name of the business owner, as seen on their Social Security card.
What is an IRS B-Notice?
An IRS B-Notice is a notice that the IRS will send to each third party settlement entity and payment company, such as Groupon, for every Form 1099-K filed that has an incorrect legal name/TIN combination. The payment company will have 30 days to solicit and obtain a new Form W-9 from the merchant with their legal name and TIN. If the merchant does not timely provide the requested information, the IRS requires each payment company to impose US Federal Income Tax withholding at a rate of 28% on future amounts settled for the merchant. As required by law, all monies will be promptly remitted to the IRS.
IRS Website Links: For individual filers, see IRS instructions
http://www.irs.gov/pub/irs-pdf/i1040.pdf
For corporation return files, see IRS instructions
http://www.irs.gov/pub/irs-pdf/i1120.pdf
MERCHANT QUESTIONS
Reach out to your account manager (the contact information can be found in your merchant center) for more information.
Further requests can be emailed to 1099k@groupon.com. Requests will be responded to in the order they are received. Normal response times will be 1 business day. During peak times such as December through March response times will be slower and may take 2 business days.
While Groupon is committed to helping our merchants understand the tax changes, merchants should contact a legal or professional adviser to understand the impact of Form 1099-K reporting on your business.