Are credit card payments reported to IRS?
Are credit card payments reported to IRS? Credit cards per the way they work, the money you have on your card isn’t income. In fact, it is similar to borrowing money and paying later. The immediate answer is that; such payments are not reported to the IRS. This is because it is simply monies borrowed and is being paid back with interest.
There is a minimum amount of money you are expected to pay every month till you are done paying the amount that was given to you on the card. When you are not able to pay up by the due date, it is carried forward as a balance and you are charged interest on it. Because these payments are repayments, they are not reported to the Internal Revenue Service (IRS)
There is however a part of it that is reported to the IRS, this is when you are using a credit card as a business entity. This is when the credit card is used by a business entity or the card is registered in the name of a business. When this scenario occurs, the Internal Revenue Service views the card as belonging to the business and thus the card’s purchases are considered part of the expenditure of the business entity. This way, whenever the said business is putting together its end-of-year accounts of its profit and loss account for the year, anything that the card was used to buy is considered as an expenditure that is captured by the accountant of the company.
Also, the interest that you pay on your cards is not taxed, but once the card is used in the name of a company it is captured in the accounts of the said company as an expense. That way, it is reported to the IRS
The next thing that could or might not be reported to the IRS is the rewards that are received. These rewards are viewed as “rebates”, financially, they are considered as a “discount” as you receive when you purchase a good. In the name of a person, it might not matter. This also depends on the country. In some countries, the gift tax applies and is very strict, in such circumstances, it is reported to the IRS for it to be taxed, in some countries, it would depend on how much it is. In other countries, it wouldn’t matter. So clearly, it depends on the jurisdiction.
What however happens when the card is used in the name of a business entity is that this reward is seen as an income to the company and will also find space in the business end-of-year account or the profit and loss account as an income, once an income to the company, it deserves to be taxed and as such will be reported to the IRS.
Reporting credit card payments to the IRS therefore clearly depends on who is using the card and the amount involved. It would also depend on the country. For example, in the United States, if one receives rewards throughout the twelve months of the year, and it comes to an amount of six hundred dollars (USD 600), this amount is automatically reported to the IRS for taxation purposes. Once this happens it becomes very formal and you will be required to fill out form 1099-MISC.
In conclusion, not all credit card payments are reported to the Internal Revenue Service. As to whether it is reported or not depends on the following:
Who is using the card? Is it a business or an individual?
How much is involved? Is the amount above or equal to six hundred dollars (USD 600)?
What does the law say in the country that is involved?