Beginning in tax year 2011, businesses received a break from the IRS. This wasn’t a tax break per se, but it did reduce the amount of time that some organizations spent compiling and reporting purchases of goods and services to suppliers. What does this mean for travel agents, travel management companies, OTAs, tour operators, and more?
Background: 1099-K Reporting Requirements
The 1099-K Reporting Requirements for Payment Settlement Entities shifted the responsibility of reporting from the purchaser to the payment settlement entity (merchant acquiring entities and third party settlement organizations) for all credit card and purchasing card (p-card) transactions. Part of the Housing Assistance Tax Act of 2008, this saves hours for purchasing organizations who would otherwise need to consolidate, reconcile, and report accounts payable transactions.
See below the background, the terminology, and how use of payment cards shift reporting to suppliers and the IRS away from your organization.
What Constitutes a Payment Card and Third-Party Network Reporting?
Under section 6050W of the Internal Revenue Code, payment settlement entities (merchant acquiring entities and third party settlement organizations) must report payment card and third party network transactions.
This reporting requirement began in early 2012 for payment card and third party network transactions that occurred in 2011.
What is a Payment Settlement Entity?
A payment settlement entity is an entity that makes payment in settlement of a payment card transaction or third party network transaction. Payment Settlement Entities are often referred to as “PSEs” and can take one of two forms:
- Merchant Acquiring Entity: A bank or other organization that has the contractual obligation to make payment to participating payees in settlement of payment card transactions
- Third Party Settlement Organization: The central organization that has the contractual obligation to make payment to participating payees of third party network transactions
1099-K Resources and Information
All instructions can be found here: 2016 Instructions for Form 1099-K, the form itself can be found here: Form 1099-K, and information for Payees, Payment Settlement Entities, and Payers can be found here: 1099-K FAQ
What This Means for Travel Companies and Organizers
For travel agents, tour operators, flash sale companies, or any of the like, you could have hundreds, if not thousands of suppliers to whom you are sending 1099s in this coming January. All of this, in turn is sent to the IRS.
If you transition completely to use of a purchasing card in order to pay your suppliers, said suppliers will receive 1099-K from the bank or credit card company in charge of the payment, and all reporting to the IRS will be taken care of by the payment settlement entity—saving you time, money, and risk.
Virtual Cards take Payment Card Benefits Further
By transitioning to a purchasing card, you can save time and money when taxes come due. But the move to a virtual card saves you all year long.
- Unique ‘Card’ Number Offers Complete Transaction Visibility and Control: With a virtual card, individual transactions are given a unique “card” number, enabling easy and automatic matching and a streamlined payment flow.
- Manual Reconciliation is a Thing of the Past: Thanks to more efficient payment flows with cleaner data (think automatic matching), reconciliation becomes simpler and you can begin managing by exception.
- Precise Transaction Controls Prevent Overcharges: VCNs enable you to can set transaction-specific controls for when, where, and how payments are authorized, including how much.
- International Acceptance: Foreign exchange risk is eliminated for cross-border transactions, as your international partners receive payments in their local currency—the same way they’re paid when accepting a credit card from any customer.
- Travel Companies Receive Chargeback Coverage: With Virtual Payments from WEX, you receive favorable chargeback rules & processes to protect you from disputed charges and supplier default.
- Universal Acceptance: Whether paying for accommodations, car rentals, cruises, flights, or rail, a one-time VCN emulates a credit card domestically or internationally, resulting in complete acceptance.
For more information on how a virtual card can do all this and more while integrating into your current processes and systems, read Into the Light: The Way to Better Travel Reconciliations and Book Smarter with Virtual Cards.
For even more, learn the three reasons that virtual cards will become the leading option for corporate travel payments in 2016.
WEX Travel has helped the largest OTAs simplify payments, but is suited to help travel organizers of any size to automate reconciliations, reduce risk, save time, and simplify payments. See how it works, and contact us to learn more.