Campus Cards May Trigger New 1099-K Reporting Requirement
March 28, 2011
Colleges and universities operating campus card programs that enable students to charge purchases at businesses unrelated to the institution will need to file a new information reporting form for 2011. Internal Revenue Service Form 1099-K, Merchant Card and Third Party Network Payments, will be used to report payments to unrelated entities in settlement of payment transactions. This new reporting obligation was mandated by the Housing Assistance Tax Act of 2008 and is intended to ensure that businesses accurately report their income from such transactions.
The following definitions of key terms used in the final rules issued by the IRS on August 16, 2010, are important in determining whether a college or university needs to file 1099-Ks.
Payment card means “any card, including any stored-value card…issued pursuant to an agreement or arrangement that provides for:
(A) One or more issuers of such cards;
(B) A network of persons unrelated to each other, and to the issuer, who agree to accept such cards as payment; and
(C) Standards and mechanisms for settling the transactions between the merchant acquiring entities and the persons who agree to accept the cards as payment.”
Participating payees are persons who agree to accept payment cards as payment.
Payment card transaction means “any transaction in which a payment card, or any account number or other indicia associated with a payment card, is accepted as payment.” Withdrawals at an ATM, cash advances or loans, or checks issued in conjunction with a payment card are not reportable transactions.
Merchant acquiring entity means “the bank or other organization that has the contractual obligation to make payment to participating payees…in settlement of payment card transactions.” Merchant acquiring entities, together with third party settlement organizations, are also referred to as “payment settlement entities,” or PSEs.
A college or university is required to file Form 1099-K if it operates a campus card program under which:
- Deposits are made by the card holder, or charges to an account at the institution are permitted, that are held by the institution;
- The card is accepted by one or more merchants that are not related to the institution (no reporting is required to related entities); and,
- The institution is contractually obligated to pay participating merchants in settlement of transactions with cardholders.
If a campus card program is outsourced to a bank or other third party, that entity, assuming it actually makes the payments to the merchants, would be the one required to file the Form 1099-K.
The regulations include an example involving a campus card:
Example 9. Campus card. (i) University Y issues Student A a card that may be used on campus at various university-owned merchants and at various local merchants unrelated to Y. [Student] A uses the card in the university-owned cafeteria to purchase lunch. Under paragraph (b)(5)(iii) of this section, no return of information is required because the card is being accepted as payment by a person who is related to the issuer of the card.
(ii) The facts are the same as in paragraph (i), except that [Student] A uses the campus card to purchase lunch at a local restaurant, unrelated to Y, that has agreed to accept the campus card as payment. Under paragraph (b)(3) of this section, the campus card is a payment card in this transaction because the card is accepted as payment by a person that is unrelated to this issuer of the card pursuant to an agreement. Therefore, the use of the card by [Student] A in the local restaurant for the purchase of lunch must be reported in a return of information required under paragraph (a)(1) of this section by the bank or other organization that has the contractual obligation to make payment to the restaurant in settlement of the transaction.
Filing Form 1099-K
The following information needs to be included on Form 1099-K:
- Name, address, and Taxpayer Identification Number (TIN) of each participating payee to whom reportable payment transactions were made during the calendar year
- The gross amount of aggregate reportable payment transactions for the calendar year
- The gross amount of aggregate reportable payment transactions by month (this breakdown is required in order to make it easier to reconcile the amounts by fiscal year)
- The name, telephone number, and federal identification number of the payment settlement entity (PSE) filing the form
Like other types of 1099s, the Form 1099-K must be filed with the IRS by February 28 of the following year and a copy of the statement must be provided to the participating payee by January 31.
If a participating payee does not provide the payor with its TIN or if the IRS tells the payor that the TIN is incorrect, the payor is required to perform backup withholding by deducting and withholding income tax from a reportable payment. Payors may check the TINs furnished by participating payees against the IRS database prior to making an information return to help minimize TIN errors.
IRS Form 1099-K
Instructions to Form 1099-K
Final rules published in the Federal Register, August 16, 2010
Proposed rules published in the Federal Register, November 24, 2009 (The preamble to proposed rules often provides a better explanation of the rule and the agency’s intent than the final rules.)
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