If your ministry accepts debit or credit cards for donations, café or bookstore purchases, or other ministry activities, you will most likely be required to report the total payments made with the cards to the IRS starting in 2012.
According to Becky Kopplin, vice president at The CashLINQ Group, “As one part of the Housing Assistance Tax Act of 2008, merchant processors are now required to report gross payments by credit or debit card to the IRS. This requirement applies to all merchants, including non-profits.”
Kopplin adds, “In order to report this information, the merchant processors must match the ministry’s legal name and tax identification number (TIN) to the IRS record. If the information provided does not match, the merchant processor may be penalized and/or credit and debit card payments made to the ministry may be subject to a 28 percent backup withholding.”
Reporting this information to the IRS does not change your other annual IRS reporting requirements. For example, if you are a church, you will not also be required to complete IRS Form 990 just because you accept debit or credit cards, unless of course you have unrelated business income tax (UBIT) due.
These regulations have been put in place to help ensure businesses adequately report taxable income to the IRS. In most cases, ministries do not utilize debit and credit cards for taxable business but are still required to report.
Kopplin explains, “The best way to verify that your merchant processor has the correct information is to provide them with any notice from the IRS that contains your legal name and TIN, like a 501(c)3 letter, a tax determination letter, or a Request for Tax Payer Identification letter (IRS Form W-9).”
The 28 percent backup withholding will go into effect in 2013. For more information on this new requirement, see irs.gov.