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New reporting to IRS of credit card transactions

August 4, 2008

Here's another non-housing related measure from the recently enacted Foreclosure Prevention Act of 2008. Credit and debit card processors now will have to provide the IRS with additional information.

IMG_0483 (2)"Payment cards (both credit cards and debit cards) are an increasingly common form of payment to merchants for property and services rendered," according to the Treasury Department. "Some merchants fail to report accurately their gross income, including income derived from payment card transactions. Generally, compliance increases significantly for amounts that a third party reports to the IRS."

Lawmakers say the measure should bring in almost $10 billion to help pay for some of the housing assistance measures in the new law.

The provision is not a direct tax on you, me and other folks who use our plastic to purchase items. But there are some privacy concerns, such as:

  • How will this database be secured, and who will have access?
  • Many small proprietors use their Social Security number as their tax ID. How will their privacy be protected?
  • What compliance costs will this impose on businesses?

Dan Ray, blogging at CreditCards.com's Talking Charge blog, provides good background on the process and the expected effect of the new law. Ray also spoke with David Sohn, senior policy counsel for the Center for Democracy and Technology, a nonprofit group advocating digital privacy, who remains opposed to the measure.

The Internet Retailer looks at reaction from online sellers. And the Wall Street Journal offfers some tips in this story to help entrepreneurs protect themselves and their profits, while complying with tax laws.

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • Any type of payment now a days can be done using the credit card and it is a known fact. This measure is needed to make the IRS aware of any transactions that you did using credit cards so that they can monitor it.

  • Anonymous

    IRS says they will only know the total amount spent in a year. That’s a start, a beginning, until they will know every detail or your spending.

  • If you have the money to pay by check, it makes far more sense than charging it. Unless you earn perks like cash-back rewards or airline miles that are worth more than the 2.35% fee, there’s no good reason to pay it. Even if you can’t afford to pay your whole tax bill right now, a better alternative for some is to use the IRS’ own procedures to get some relief. Requests for up to 120 days of additional time to pay in full carry no fee, and although interest continues to accrue, the current annual rate of 3% is far less than what many credit cards charge. Longer repayment plans come with an application fee, but it can still be worth it if you can qualify for reduced IRS penalties.

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