New reporting to IRS of credit card transactions

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.

"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.

Comments

[CashAdvancesUS.com]

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.

[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.

[CUA]

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.