Federal Housing Assistance Tax Act Section 6050 W (IRS Reporting)
In January 2011, the IRS enacted section 6050W, an amendment to the Federal Housing Assistance Tax Act of 2008. This IRS mandate requires all merchant service providers to validate the legal name and Tax Identification Number (TIN) for every merchant in their portfolio, and report to the IRS all annual revenues associated with these accounts.
To comply with this government mandate, Clarity USA is required to:
- Submit to the IRS the legal business names and tax ID numbers for all of our merchants, and ensure that these records match those in the IRS database.
- File a return with the IRS no later than January 2012, and annually thereafter.
- Provide all merchants who accept electronic payments an annual 1099-K form reporting their monthly and annual gross sales income during the previous calendar year.
- Withhold income tax (currently 28%) from the gross sales amounts of merchants whose TIN records do not match IRS records by filing date, January 2012.
- After careful review and analysis, Clarity USA has created a Regulatory Program designed to meet and exceed these requirements, ensuring that our valued customers remain compliant and free from unnecessary withholding while, at the same time, requiring the least possible demands on your busy schedules.
The components of this program are as follows:
- TIN Matching.
- Clarity USA will annually submit to the IRS the legal business names and tax ID numbers (TINs) of all our merchants.
- Merchants with unmatched records will receive notification from Clarity USA with instructions for correcting the missing or mismatched information, and a timeframe to correct/update this information to avoid penalty fines.
- As merchants update and correct unmatched TIN information, Clarity will continually submit this information to the IRS until the correct information is validated.
- IRS Reporting.
- In January 2012, and annually thereafter, Clarity USA will file an annual return with the IRS reporting all payments in settlement of Visa/MasterCard/Discover cards and third party network transactions.
- At the same time, Clarity USA will complete and mail a 1099-K form to all merchants in our portfolio who have accepted electronic payments in 2011. This form will report all monthly and annual gross sales income based on the 2011 calendar year.
- If a merchant’s legal name or Tax ID number in CIMAS does not match IRS records, Clarity USA will, beginning in January 2012 and at the instruction of the IRS, perform backup withholding from merchant funding by deducting and withholding income tax (currently 28%). Merchants subject to Federal income tax backup withholding may also be subject to State tax withholding.
- These funds will be held by our Sponsor Bank and released only when notified by the IRS to do so. Clarity has no access to, or control over, these withheld funds.
- All businesses with missing or unmatched TINs will be mailed written notification from Clarity USA no later than September 4, 2011, and will have until the end of the month to correct this information to avoid penalties.