What Are MCCs, or Merchant Category Codes?

Oct 30, 2022 By Triston Martin

Credit card companies use four-digit numbers called merchant category codes (MCCs) to classify their customers' purchases with each card. Payment companies use merchant category codes to categorize retailers and service providers based on the items or services they sell.

MCCs have a variety of applications, including tax reporting, promoting interchange, and tracking cardholder spending habits. All credit card companies accept most merchant account codes (MCCs).

Category Coding for Retailers: An Overview

Merchant category codes serve several functions. They decide whether or not a business transaction must be reported to the IRS and the benefits customers earn for using their credit cards. In addition, they establish the fee that a company must pay to the credit card processor for every transaction. The following are some typical applications of merchant category codes.

  • A customer with a credit card that gives 5% cash back on airlines should be rewarded for any purchases that fall within MCC 4511, the industry code for air transport companies.
  • Companies and government entities record service purchases to the IRS so it may collect income taxes. Companies can utilize MCCs to identify whether purchases made with a credit card qualify as services.

Credit Card Rewards: How MCCs Can Help

Those familiar with their MCCs tend to receive more significant benefits from their reward cards. Think about it: you have a credit card that gives you five points for every dollar spent at eateries.

The credit card company uses the MCCs to identify whether or not the credit card transaction occurred at a restaurant. Your lunch purchase at a mom-and-pop store/restaurant hybrid that the MCC has categorized as a supermarket will not get you the total 5 points per $1.

If you shop at this business regularly and are familiar with their MCC, you may use a different credit card, like one that offers 3 percent cash back on purchases made at grocery stores, to get the most out of your rewards.

What's A Merchant Category Code?

Credit card issuers categorize businesses using a four-digit called merchant category code. The MCC of a company may be used to reveal what kinds of products or services are being offered to consumers. If a company deals in items and services, its MCC will typically represent the one that brings in the most money. A company might apply for a second MCC to cover a different aspect of its operations. A supermarket and a pharmacy in the same building may each be an MCC.

Where to Look for a Store's Category Code

A search for "merchant category codes" (MCCs) on the website of any given credit card processor will yield a list of each credit card network's MCCs. You may find the appropriate page online for "[processor] merchant category codes." If you have any issues, you may also contact the number on the back of your credit card.

A customer can verify the category an item was charged to by reviewing their bank statement. Each transaction has to include a "merchant description" element detailing the type of merchant making the sale. This won't always be the four-digit code but rather the name of the corresponding category.

Why Is Knowing Your MCC So Important?

Business owners, those who use credit cards for their companies, and consumers who want to maximize their credit card rewards should all pay attention to MCCs.

Why It Is Essential For Business Owners

Businesses should be aware of MCCs since these codes determine whether or not a business owner must file a Form 1099-MISC for a specific payment. Businesses' ability to impose a convenience fee for using a credit card is also influenced by the presence of an MCC.

Measures of risk are similarly susceptible to MCCs. Businesses that are deemed to be "greater risk," such as pawnshops and airlines, may be charged higher transaction fees and interest rates by some credit card issuers that employ MCC categorization.

The interchange fees that businesses and organizations like primary and secondary schools and charities pay might be reduced if they have a unique code.

Why It's Crucial for Cardholders

Credit card companies that offer MCCs make it easier for company owners to identify which expenses should be reported on IRS Form 1099-MISC. Payments made by a firm for services but not for the acquisition of products must be reported to the Internal Revenue Service. Users of corporate credit cards may make more informed spending decisions with the aid of merchant category codes.

Another reason MCCs are significant is that they may lead to perks for cardholders. If you use your credit card at certain establishments, such as restaurants and grocery shops, you may be eligible for rewards in the form of cashback or points.

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