Fake MCC codes are a big threat to today’s High-risk merchants. The codes can be manipulated in such a way it could ruin a business at any point time. Because of the way they work, they can be falsely coded into a merchant account. But to understand why this is a big problem, we need to fully understand what MCC codes are.
MCCs, or Merchant Category Codes, have been around since 2004. Their primary function back then was making 1099 reporting as easy as possible. Since then their functionality has expanded. They’re considered important since they have the ability to track the type of merchant in operation as well as their line of business.
The four-digit code is sent to the merchant as soon as credit card payments are received. Card carriers are always the ones offering MCC codes to the merchant since they directly report to the IRS. MCCs are also used to determine if some payments and purchases are taxable.
The only tax applicable to merchants through MCCs is the tax on purchased services. It doesn’t apply to purchased products. Merchants are smart enough to obtain MCCs from other companies that operate with them and the ones they’ll be making payments to. They’ll need to report this information to the IRS as these codes are essential to figuring out which purchases are excluded.
Merchant Category Codes are used by merchants and banks to detect fraud purchases in real-time. This is because if a merchant account or credit card gets stolen and used in a different location, a report is sent out immediately to alert both the bank and merchant. They’re widely used in marketing since the latest trends are often noticed by customers and merchants to help modify their marketing strategies.
Take note, merchants should always be a step ahead of the government to avoid being “hounded” by the IRS.
MCCs are indeed useful for today’s merchants. One wrong move and everything will fall apart. This is why it pays to be careful whenever you operate on MCCs. A single typo, no matter how small, can haven an big impact. If not fixed in time, the result can be disastrous, especially for high-risk merchants.
It’s important to determine the problem and have it solved as soon as possible since every second of it is valuable for high-risk businesses. Always have everything checked. And if it all checks out then proceed with opening up your business. It’s better off avoiding problems on your first day of business.