What Every Merchant Should Know by Payex

Housing and Recovery Act of 2008- What It Means For You and Your Business

January 7th, 2011

It is a new year, and unfortunately the change in date brought along a little known change related to credit card acceptance. Congress and the IRS, in their infinite wisdom, tucked legislation within the Housing and Recovery Act of 2008 requiring, among other things, reporting of your credit card transactions to the IRS. This legislation, though passed back in 2008, came into full effect at the start of the 2011 calendar year.

So what does this mean for business owners and merchant service providers?

First, credit card processors will now need to validate every Tax Identification Number (TIN) with the IRS that you provide to your merchant service provider. In the event there is a mismatch, the processor will require a prompt update to the correct TIN or be forced to withhold deposits from you.

Second, processors will now be required to report all credit card transaction processing information to the IRS in January for your prior year’s processing. While credit card transactions and checks were always much more traceable than cash, this direct reporting seems to be another instance of “Big Brother” flexing its muscles.

Finally, and in our opinion worst of all—you better hope you and the IRS are on good terms. If you happen to owe them a little money, your credit card processor could be forced to withhold all or a portion of your funds and forward them to the IRS.

While the IRS claims the new legislation is a simple way to help track money between small businesses and merchant account providers, we believe that the policy change is both unnecessary and threatening to business owners. In our opinion, and likely many within our industry, this is simply another instance of big government sticking its nose in a business it doesn’t understand.

For example, the systems required for merchant service providers to validate TINs, provide reporting, and withhold funds were or are not fully in place. Software development costs to ensure proper handling of such can be extreme. With profit margins of processors being compressed more than ever, most if not all are resorting to passing these costs on to merchants in the form of higher rates, annual fees, or increased monthly charges. So if you as a business owner are paying more to accept credit cards, does that mean you need to increase the prices your customers pay? If so, what effect does that have on their ability to spend what little money they have with other merchants like you?

For that matter, what effect would it have on your business if the IRS ordered your credit card processor to withhold 30% of your credit card sales to repay a tax liability you may owe? Could your business survive?

We would love to know what you think of these new requirements and how they might impact your business or your industry in general. Do you think the changes are positive or do you concur that “Big Brother” stuck his nose where it doesn’t belong yet again? While there is little that can be done about it, we would really like to know your take on this matter. Please comment with your thoughts or questions.

You can check out the full IRS legislation (all 48 pages) here.

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