The Internal Revenue Service (IRS) has issued regulations that require companies that process credit card and bank payments on behalf of businesses, educational institutions, and organizations of all sorts to compile and file reports to the IRS and the company or organization for which the payments were processed. For colleges and universities, this means that any company which processes payments such as tuition and incidental fees will prepare and submit an annual report called a Form 1099-K, Merchant Card and Third-Party Payments.
The 1099 series of forms was designed by the IRS as a way to gather and report information on non-wage income from a variety of sources including dividends from stocks or investments, interest from bank accounts, Social Security benefits and distributions from retirement programs. The new regulations, issued in August of 2010, call for any payment settlement entity to collect and report the gross amount collected, reduced by any fees or rebates. These reports will be submitted on Form 1099-K and they will be sent to the IRS and to the institution.
Many colleges and universities make use of payment processing companies for efficiency and security reasons. These companies process a variety of payments that include tuition (single or monthly payments), incidental fees, donations, and activity fees. Compliance with this new IRS regulation is the responsibility of the third party processors. They have already begun to collect the information for 2011 as required and will prepare and submit the new 1099-K reports shortly after the first of the year in 2012.
To facilitate the reporting of the payment collections, payment processors are beginning the process of requesting and recording US Government tax identification information for the institutions they serve. Most colleges or universities are classified either as tax exempt non-profit educational institutions or they share the 501(c) (3) tax exempt status with another entity such as a state agency or sponsoring organization. In either case, payment processing companies will need to gather the proper reporting information including the institution’s legal name and tax identification number. This will enable the processors to accurately report the information to the IRS.
Payment processing companies, including Nelnet Business Solutions, are working to comply with this new IRS regulation. The cooperation and support of colleges and universities will help them comply with this regulation.
For additional information, contact:
Randall Bretz, Nelnet Business Solutions