How the IRS Can Take 28% in Fees From Your Merchant Account!
Every Fall, SecureGlobalPay, through their affiliates receives a notice from the IRS with a list of all our merchants who have an IRS file with an invalid or incorrect business name and/or Taxpayer Identification Number (TIN). This is due in part to the Housing and Recovery Act of 2008: Merchant Tax Reporting. This amendment requires banks and merchant providers like SecureGlobalPay, to report the payment card transactions of our merchants to the IRS. Essentially, this amendment puts the responsibility of collecting and verifying the Taxpayer Identification Number directly into the hands of merchant account providers with in turn passes this responsibility off to the merchant when notifying them via a IRS Withholding Notice.
If SecureGlobalPay merchants or merchants in general, do not provide the correct Taxpayer Identification Number or legal business name, or a mistake is made in recording the information within the IRS records, the IRS requires that the processor begin to withhold up to 28% of the merchant’s gross credit card sales until the information has correctly been updated. Please keep in mind, this percentage amount is only the penalty imposed by the Federal Government. Many states also impose a hefty percentage fine for not complying with the reporting mandate.
What Does IRS Withholding Notice Mean for Me?
When we receive a IRS Withholding Notice from the IRS indicating a mistake we will immediately contact you in the form of a “B” notice statement. It is critical that you contact us to submit all the information needed to the IRS before December 3, 2015. If you do not get this information to us in a timely manner, there are penalties involved.
How Does the IRS Notify SecureGlobalPay?
The IRS typically finds an error with your Taxpayer Identification Number through forms submitted to the IRS such as your 1099-MISC. When this happens the IRS will notify their central office of the mistake. The central office will then notify the operating location closest to us via more forms.
The task of the operating location is to figure who to notify about the error. If the business owner has a merchant account, then they will send the merchant account provider a list of clients. At this point, the merchant services provider (SecureGlobalPay and their affiliates) are tasked with making sure that we contact the merchant to fix the error.
The SecureGlobalPay Notification Process
SecureGlobalPay takes the notification processes seriously. We typically reach out to our merchants by mail or via email through a form called the “First B” notice. We ask that our clients respond to this notice within 15 days. It usually has a cover letter with the following statements:
“The Internal Revenue Service (IRS) has notified us that the taxpayer identification number (TIN) on your account with us does not match their records. The IRS considers a TIN as incorrect if either the name or number shown on an account does not match a name and number combination in their files or the files of the Social Security Administration (SSA). If you do not take appropriate action to help us correct this problem before the date shown above, the law requires us to withhold on the payments that we make to your account. The backup withholding rate is 28%. In addition to backup withholding, you may be subject to a $50 penalty by the IRS for failing to give us your correct name/TIN combination. This notice tells you how to help us make your account records accurate and how to avoid backup withholding and the penalty.
What You Need To Do – Sole Proprietors?
If you have never been assigned a social security number or taxpayer identification number (or if you lost your social security card and do not know your SSN), call your local SSA office and find out how to obtain an original (or a replacement) social security card. Then apply for it. If you already have a social security number: Compare the name and SSN on your account with us (shown at the beginning of this notice) with the name and SSN shown on your social security card.”
Why Your TIN May Be Considered Incorrect
An individual’s TIN is his or her social security number (SSN). Often a TIN does not match IRS records because a name has changed through marriage, divorce, adoption, etc., and the change has not been reported to SSA, so it has not been recorded in SSA’s files. Sometimes an account or transaction may not contain the correct SSN of the actual owner. For example, an account in a child’s name may reflect a parent’s SSN. (An account should be in the name and SSN of the actual owner.)
We will also include a blank W-9 Form that you can submit to us. If we do not hear from you within 30 days, we will begin the process of withholding backup funds. Withholding funds will stop no later than 30 calendar days after we have received a signed W-9 Form
What Do I Need to Submit – EIN?
If you have received a IRS Withholding Notice or “B” notice from us, then it is important that you verify your Taxpayer Identification Number as well as the address and business name associated with the account. Even the smallest mistake could result in a notice being sent to us from the IRS (i.e. you file your legal business name using “&” instead of “and”).
For most businesses, the Taxpayer Identification Number is your Employer Identification Number (EIN). If you are a sole proprietor and do not have an Employer Identification Number, then you must send in your Social Security Number. This is used in place of your Employer Identification Number.
All information can be updated by filling out a simple W-9 form and returning it to SecureGlobalPay as soon as possible.
What are the Penalties?
If the bank/processor does not receive a W-9 form with the corrected information, then they are required by law to withhold funds at a rate of 28%. Many states also require that we withhold funds, but percentages vary from state to state.
Backup withholding will begin for merchants on December 3, 2015 if you do not provide bank/processor with this information by December 2, 2015.
If you haven’t received a IRS Withholding Notice, but are concerned, please reach out to us to find out if you are on the list. A quick phone call can save you a lot of time and hassle.
To find out if this impacts any of your business, please contact the SecureGlobalPay Support team at +47 333 78 901 / +805-855-0214 or email email@example.com