Merchant 1099-K’s: Everything You Need to Know

The 1099-K form is newer to the tax reporting scene in relation to its other 1099 form counterparts. The purpose of the form is to ensure that all businesses that accepted payment methods other than cash/check have reported those amounts appropriately to the IRS.

What is a merchant form 1099-K?

The 1099-K is the IRS’s way of ensuring that merchants report their total sales on their annual tax returns.

Who receives one?

Any merchant receiving payments via credit cards, debit cards, and stored-value cards, such as gift cards. For tax year 2022, the form will be required for entities receiving payments totaling $600 or more. For previous years, the threshold was a transaction count exceeding 200 and sales volume greater than $20,000.

What is reported?

Gross sales paid are reported on the form. Amounts for returns or processing fees are not included. There is also a breakout of card-not-present (CNP) transactions.


What You Can Do Now to Prepare for Filing In January

  • Resolve any TIN mismatches. If you filed in previous years, the IRS sent you a list of merchants whose legal name did not match the Taxpayer ID number. These should be resolved now to avoid potential fines. You can follow up directly with the merchant to resolve or use the IRS’s TIN matching system.  Once you receive valid data, ensure that you update it at the source so that you do not need to update again in future filing years.
  • Clean up contact information for your merchants. Ensure that you have a valid email and mailing address for merchants. 
  • Verify that you have been accumulating the appropriate information for filing. Whether you are preparing the forms in-house or outsourcing, you will need specific data fields for reporting purposes.
  • Determine whether you will prepare the forms in-house or outsource to a third party provider.


If I’m a merchant and receive this form, what do I do with it?

If a tax advisor completes your return, provide it to them along with all other tax documentation. Generally, if you’re an independent contractor or self-employed, your Form 1099-K income will be reported directly on a Schedule C, Profit or Loss from a Business.

How do I verify the numbers reported on the 1099K?

You should be able to tie the total amount of sales back to the gross sales reported on any of your merchant statements. Keep in mind that the volume amounts reported on the 1099-K are gross sales and do not net out any returns or fees charged. Also, keep in that mind that if you have multiple merchant accounts with a processor that all have that same TIN, these accounts have likely been rolled up into a single reporting form.

Does this form include the fees I paid for processing?

No. You should refer to your merchant statements or year-end summary from your processor to find that information.

When and how should I receive form 1099-K?

The reporting deadline is January 31st. Most processors send them via email or make them available in the same place you would access your merchant statements. Otherwise, look for a hard copy mailed to your business/mailing address.

What is MCC on form 1099-K?

This is the “Merchant Category Code” your processor assigned to your merchant account based on the card association guidelines. It is used to classify your business based on the types of goods and services it provides.

Will I still receive a 1099-K if my merchant account is closed?

Even if your account is now closed, you will receive a 1099-K as long as you met the IRS’s minimum reporting requirements for the tax year.

Visa Dispute Monitoring Program

The Dispute Monitoring Program is Visa’s version of discipline and consequence for merchants who exceed the chargeback thresholds they deem as acceptable. If merchants aren’t careful, they can ultimately end up in a permanent timeout.

The threshold is calculated as the number of chargebacks and the dollar volume as a percentage of the merchant’s total sales volume.

There are different consequences for each level. At the early warning threshold, they just keep a watchful eye. At the standard level, merchants are given a grace period, but then hit with additional per-item chargeback fees. At the excessive level, the per-item fee hits immediately and Visa can exercise the right to terminate the merchant’s account, banning them completely from accepting Visa payments.

There’s a similar program to monitor the thresholds of chargebacks for the specific reason of fraud. The penalties are a harsh flat fee. After a few months in the standard program, merchants are charged $25,000 monthly while the excessive program will run $10,000 in the first few months, then $25,000, and increases from there.

Acquirers (the financial institutions that maintain a merchant’s account in order to accept credit cards) have their own thresholds. If their ratios fall above the thresholds, they can wind up in the Visa Acquirer Monitoring Program. Again, the purpose is to identify acquirers whose portfolios generate excessive disputes or fraud in an effort to help reduce dispute/fraud activity. The important distinction is that here, Visa is measuring against their thresholds for a group of merchants, whereas above they are measuring for individual merchants.

If a processor is wanting to terminate a merchant account, citing chargebacks, but it doesn’t seem logical given your activity, it could be that they are trying to clean up their portfolio as a whole, and you happen to be lumped in with some other problem children.

Knowledgeable ISOs can connect merchants with the tools and resources to reduce their chargebacks.  

If you need help connecting with these resources, please reach out to us at

Everything You Ever Wanted to Know About PIN Debit Interchange

To understand debit interchange, we have to start with the Durbin Amendment. The law caps the interchange rate that can be charged on PIN debit transactions at .05% and the transaction fee at 22 cents for card-issuing banks that have $10B in assets or more. You’ll see transactions subject to the Durbin Amendment referred to as “regulated.”

Important to note: the law dictates what the card brands can charge on debit, but not what the processors can. 

Let’s revisit the two types of debit transactions:
Online debit (pin is used): This forces the transaction to be routed through the debit networks instead of credit networks.
Offline/signature debit (no pin is used): Depending on which logo is on the card, the transaction will be routed through that card brand and interchange fees assessed.

A 22 cent transaction fee is high in the world of payments processing. Now let’s consider what that effective rate looks like on a low average ticket, let’s say $5. That’s 4.4%. So capping the rate with this transaction fee helps merchants with higher ticket sizes, but not lower ones.

💡 Merchants with a low average ticket size might do better accepting offline debit and credit transactions, while others will do better with online regulated debit.

But wait, how does a merchant know whether the card they are accepting is regulated by the Durbin Amendment or not? Are they going to ask the cardholder for their card and check the issuing bank against a book of rates they have nearby? Not likely.

There are also routing rules that dictate which debit network rails the transaction will travel on. Fees vary between the networks. Routing preferences can be set by the acquirer.

So to help your merchant, you should look at a history of their processing activity and decide their smartest card acceptance strategy. Do the big guys do that?  No. 

And now you know how to be a real-life payments hero.

You can learn more about PIN debit transactions by visiting this post.

5 Fun Facts About PIN Debit

A PIN debit transaction involves a customer who pays with a debit card and enters their PIN number.  These transactions are different from credit card transactions in the way that they are billed, routed, and more. 

1.      Pin debit sales are settled differently than credit transactions because these transactions are single message (authorization and clearing/settlement data are in one message) vs. credit transactions that are dual message (clearing/settlement comes after the authorization.) The easiest way to explain it is like this: when a merchant runs a credit sale, the authorization is merely a placeholder for funds on the cardholder’s account.  When they batch out credit transactions, the issuer debits the cardholder’s account with the sale capture, and the acquirer processes a sale to fund the merchant.  Whereas with debit, the issuer debits the cardholder’s account at the time of sale (not batch) but the acquiring side does not clear until the merchant batches out. For this reason and a few others that are too detailed to explore in this post, there is always a timing difference for acquirer funding on pin debit transactions.

2.      Everyone loves the low cost of debit cards, but you really need to understand the fee structure to be sure they’re as low as you think they are. Debit fees are complicated, mostly because some are capped with the Durbin Amendment. But also because there are several networks, each with their own switch fees and annual fees, and some transactions are subject to assessments. For this reason, flat rate pricing for merchants who have a small average ticket size and process mostly debit is not a good idea. The math never works. 

3.      Debit cards have stricter dollar and time limits on when they can be disputed by cardholders vs. credit cards. The cardholder liability is capped at $50 if they notify the bank within 2 days of an unauthorized charge. After that, the cap increases to $500, and if it’s after 60 days, the cardholder is liable for 100% of unauthorized charges. This coverage for consumers comes from the Electronic Funds Transfer Act.

4.      Debit cards are regulated by a different set of laws than credit. These laws prevent merchants from requiring a minimum charge or adding a surcharge to debit transactions.

5.      You will hear debit transactions referred to as “online” and “offline.” Online transactions are deducted from the cardholder’s account immediately. Offline transactions (also referred to as signature debit) are settled like credit transactions only when they clear through settlement. When you bypass entering a pin, an online debit transaction becomes an offline one. 

Underwriting and Risk: Adversaries or Allies?

In merchant services, balance is important between underwriting and risk teams.  If left unchecked, these two teams can work against each other, making the other’s job harder than it should be.

Each of these teams has clear yet different roles:

Assess whether applicants adhere to bank, card brand, and regulatory rules. In a nutshell, they are trying weed out fraudsters, money-launderers, and businesses that would pose a financial risk to the institutions processing their payment transactions.

Monitors transactions processed after they are boarded. Are they processing transactions outside acceptable parameters? Does the activity make sense given the business type? Is the activity indicating the institution processing those transactions could be at risk, financially or otherwise?

In an ideal world, balance exists between these two teams. 

For example, if an underwriting team is heavy-handed and turning away anything that is even a tad bit risky but has the potential to be monitored and managed with a good risk program, we’re 1) not letting the risk team do their jobs and 2) turning away business we could likely take. A real morale and profit- buster.

If the underwriting team is not turning away business that they should, we are over-taxing the risk team’s resources and setting them up for failure. We can expect that we will lose most of these merchants, and we’ll probably incur financials losses.

Why bother boarding them in the first place? Again, not the kind of things risk teams usually get excited about.

Hopefully, now we can see why balance within and between these two teams is critical to both operating well. The balancing act is ongoing… this is something that should be constantly monitored and tweaked.

How to Prevent Profit Leakage on Closed Merchants

It’s bad enough to lose a merchant in your portfolio, but it’s even worse when a closed merchant is COSTING you money.

Let’s do some review and cleanup and make sure you’re not losing money on closed merchants.

👉 Compare your processing billing detail against your active merchant list. Any unmatched merchants are likely closed and you’re probably paying a per-merchant-per-month fee for these closed merchants.
👉 Compare your gateway billing against your closed merchant list to be sure you’re not paying monthly fees for merchants who are no longer processing.
👉 Compare any third-party services where you pay per merchant account — PCI services, CRM, risk monitoring, etc.
👉 Did you deploy any equipment that has ongoing costs associated that flow through to you, even if the merchant no longer processes through you?  Did you collect the equipment if it belongs to you?
👉 Are you losing money on closed merchants because you didn’t adequately reserve higher-risk accounts, and now you’re stuck paying their chargebacks and resulting fees? If so, it’s time to revisit your underwriting/reserve guidelines.

Now that you’ve completed the above and see how much  money you’ve saved, formalize a merchant closing procedure so that you can prevent these costs in the first place.

Building Win/Win Compensation Plans for Agents

Sales offices seem to believe that the more complicated they make their compensation plan, the more attractive it will be to their agents.

This isn’t the best approach for a couple of reasons:

1️⃣ If you can’t systematically, accurately, and cost-effectively calculate downline residuals, your comp plan is flawed from the start. Remember that this activity is non-revenue generating. Do you want to spend too much time figuring out what’s already taken place or out driving more sales?
2️⃣ If your agents can’t easily recalculate their own compensation with what you’ve provided them, how can you expect them to trust you? A relationship without trust 👉 flawed.

We’ve seen simple comp plans work quite well. And it’s a win for both the sales office and its agents.

Before rolling out any new comp plan, first, ask yourself these two questions:
1️⃣ Can I automate this calculation and reporting?
2️⃣ Can I provide transparent reporting to all parties involved?

The winning plan is fully automated and provides complete transparency. And most importantly, all parties feel like they are receiving fair value in return for their contribution.

What is a Reasonable Acquisition Cost for Landing a New Merchant Services Customer?

Customer acquisition cost is the amount of money spent to acquire new merchant services clients.  It can provide a lot of insight into the best way for ISOs and agents to spend their time and dollars on attracting new customers.  

So, what is a reasonable customer acquisition cost when it comes to merchant services?

Well, like just about everything else in this world, it depends. But fortunately, with a little math, we can get closer to an answer for your specific situation.

First, you have to know your customer lifetime value. This is the amount you’ve earned for a single client over the course of your entire relationship with them. You can use averages here over a payments portfolio of business, but we’d highly recommend breaking these out based on similar merchant types since the margins can vary so widely.

You won’t earn the same amount on a restaurant client as you do on a B2B client, nor will you earn the same amount from a cash discount portfolio as you will an interchange plus one. The more specific you can get in your grouping, the more accurate you can be.

Now, subtract any direct costs of acquiring a single merchant account. If you always provide free equipment, use the typical amount you’d spend on a merchant in this type of portfolio. Again, more specific grouping leads to better results. A restaurant would need an expensive POS while a B2B client needs no equipment at all. If you provide an upfront signing bonus to agents, factor this in, too.

Next, we have to estimate what it costs us to support this business. I would recommend you come up with an operating expense % to apply. Take your operating expenses from your P&L and divide that total by your total residual income. Use amounts over an entire year to account for the cyclical nature of our business. Apply this percentage to the customer lifetime value.

For the sake of example:
Customer lifetime value: $2000 (100 months @ $20/month)
Upfront cost: $500 ($300 in equipment & $200 agent signing bonus)
Overhead applied: 10% ~ $200
Net: $1300

We could spend up to $1300 in customer acquisition costs and break-even, but let’s be real, NO ONE WANTS TO WORK FOR FREE. 

And we should also plan for a little wiggle room for the unknown and unexpected. 

So, a good starting point is 25-50% of this amount. Then you can adjust according to the trends and your comfort level.

Sometimes it can be hard to see money fly out the door on sales and marketing, but as long as you do the math and see positive ROI, you can increase your spend to drive more sales, and ultimately, more margin.

What’s Considered a Fair Revenue Share When it Comes to Residuals?

What is considered a fair revenue share on merchant services residuals?

There’s no hard and fast formula. But consider revenue share (or commonly referred to as split) a sliding scale that depends on these factors:

👉 The amount of training you need
👉 The amount of support the ISO provides to your merchants. A referral arrangement where you simply hand off leads will earn less than one where you provide ongoing service/support to merchants.
👉 The amount of liability the ISO is taking on your behalf. Low-risk/card present portfolios have higher revenue shares than high-risk ones.
👉 Your proximity to the processor. The closer you are to the party actually processing transactions, the more revenue share. If you’re an agent sending business to an ISO that sends it to another ISO, you’re getting a split of a split. There’s nothing wrong with this as they are likely providing support or resources not available to you closer to the processor. Just know where you stand and the parties involved.
👉 The number of freebies you receive. Getting free equipment? That’s fine, but understand it’s baked into the cost of your agreement.
👉 Access to proprietary software or technology.

What’s “fair?”
⚖️ The arrangement where both parties feel it is a mutually beneficial arrangement with potential for growth.

Homework assignment:
📝 Check your existing agreements to be sure you’re earning revenue share on every item billed. This is a common margin buster for sales agents/offices.

The Bank Identification Number – Everything You Ever Wanted to Know (And More!)

Here’s everything you ever wanted to know about the Bank Identification Number (BIN.)

➡️ The International Organization of Standardization (ISO) oversees the standard that defines Issuer Identification Numbers (IIN,) known as BINs. The American Bankers Association (ABA) manages the pool of numbers available to card issuers.
➡️ As of April 2022, Visa and Mastercard started issuing BINs with 8-digit numbers. This did not have any effect on the length of the Primary Account Number (PAN.) Previously they were 6, sometimes even 4.
➡️ What can BINs tell us about the card that is being accepted for payment?
✔️ The first digit is the Major Industry Identifier (MII)
✔️Information about the bank that issued the card, including whether it’s a domestic or foreign transaction
✔️ The card brand
✔️ Whether it’s a debit, prepaid, or credit card
✔️ Level of the card
➡️ The BIN information is what is used much of the time to identify fraudulent charges. If the issuing bank is in one country, but the cardholder’s shipping address or geographic location is another, this can be a red flag. If there’s a data breach, the BIN can be used to identify affected data.
➡️ The BIN information can also be used to determine whether the type of card presented is acceptable for the use case – for example, if a prepaid card is presented for a recurring subscription.
➡️ BIN Attack Fraud: This is when fraudsters use the first known 6-8 numbers of a credit card and then use software to automatically generate the remaining numbers. They test these combinations, usually with several small-amount authorizations to determine if the numbers are active and valid.
➡️ You may already be familiar with the term BIN as it used on the acquiring side. A BIN commonly refers to a group of merchants that belong to an ISO with an acquiring bank. The first 6 digits of a merchant number identify the acquiring BIN. Visa is renaming this identifier to “Acquiring Identifier” to minimize confusion with issuing BINs. This number will remain 6 digits.

There are a number of BIN lookup sites, which are helpful when investigating transactions.  Check out this BIN lookup tool hosted by Chargebacks911.