Attention merchants! The Internal Revenue Service (IRS) has enacted rules that require all merchants to provide all credit card processors and third-party payment processors with a valid Taxpayer Identification Number (TIN) that matches up correctly with their business name. Failure to comply now leads to a mandatory 28% backup withholding on all credit card sales paid directly to the IRS. There may even be additional backup withholding at the state level.
We want to help all of our customers correctly file their taxes and avoid overpayment via mandatory backup withholding. Having the correct Taxpayer Identification Number (TIN) will keep things organized and running smoothly – without overpayments that are difficult to claw back from the IRS.
Here’s what you need to know.
What Is a Taxpayer Identification Number (TIN) Anyway?
Get ready for a little alphabet soup. There are a two different ways to refer to the nine-digit number that identifies your business. This is primarily based upon how you communicate with the IRS and the Social Security Administration (SSA).
You will use this number in one way to identify your business as a taxable entity. This is when it is called a Taxpayer Identification Number (TIN). You will use the same number when referring to your business as an employer. In this context, it will be referred to as the Employer Identification Number (EIN).1
When reporting revenue and expenses to the IRS, your nine-digit number is referred to as the Taxpayer Identification Number (TIN). When working with Integrity as your credit card processor, you will see this number listed as the merchant Taxpayer Identification Number.
If you have employees, you must also have a nine-digit Employer Tax Identification Number (EIN). This number is the same as your nine-digit Taxpayer Identification Number (TIN).
When identifying your business for employment tax reporting, including Social Security and Medicare payments, this number is referred to as the Employer Identification Number (EIN).
What Happens if My Taxpayer Identification Number Is Missing or Incorrect?
Basically, the government is making sure they get paid. To make sure that businesses pay the required taxes, the IRS requires credit card and third-party payment processors to withhold 28% of your revenue if your Taxpayer Identification Number is incorrect or missing. This requirement is part of The Housing and Recovery Act of 2008, Section 6050W.2
Since October 2014, all merchants are required to provide an accurate Taxpayer Identification Number that correctly matches their business name to credit card processors and any other third-party entity reporting their sales to the IRS. If the credit card processor does not have accurate information, they are required to hand over 28% of all sales directly to the IRS. This is true for all credit card processors, including Integrity and all of our competitors.
The downside of backup withholding is that merchants will have to go through the IRS to get back any money that was overpaid. At this point, you are at the mercy of the IRS and their timeline. Getting any overpayment back will almost certainly take a long time.
Furthermore, many states may require your payment processor to withhold a percentage to make sure they get their sales tax revenue. Again, this is an example of the government taking action to make sure they are paid the taxes they are due, but it may result in overpayment for merchants. And once again, it might take a lot of time and effort to reclaim funds from your state.
How to Avoid IRS Backup Withholding
Integrity works carefully to avoid IRS backup withholding for your business. We will need your help to make sure that all identifying information is correct. Any information submitted by Integrity should exactly match your business tax return.
When you work with your sales agent to complete your Merchant Processing Agreement, double-check all of your information and carefully proofread this form, including your Taxpayer Identification Number (TIN) and your business name. In your business name, check for things like the word “and” instead of an ampersand (&), apostrophes and spelling. Even minor details like these can cause a mismatch between the IRS’s information and our database.
The information on Form 1099-K also needs to be correct.3 Click HERE for details directly from the IRS.
Also, please be aware that if your business structure or ownership changes, you may need a new Taxpayer Identification Number (TIN).4 If you make any changes to your TIN, please alert us as soon as possible to avoid IRS backup withholding.
Integrity makes business even better. Contact us today to find out more about our powerful payment processing solutions and merchant services.
- Taxpayer Identification Numbers (TIN). (2016, April 4). https://www.irs.gov/individuals/international-taxpayers/taxpayer-identification-numbers-tin
- Housing and Economic Recovery Act of 2008. Public Law 110-289. (2008). http://www.fhfa.gov/Government/Documents/GPO_Authenticated%20HERA.pdf
- Department of the Treasury, Internal Revenue Service. (2013, August). Don’t Get Caught in Backup Withholding: Information about Your Form 1099-K. https://www.irs.gov/pub/irs-pdf/n1430.pdf
- Employer Id Numbers. (2016, July 14). https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers-eins