The MCC Code and How it Works
The Merchant Category Code, also known as the MCC Code, is basically a code used to identify a merchant. Every merchant is assigned one of these types of codes and they can be useful in a variety of situations. This is typically a four-digit code that is sent by the business when they do a transaction with the rest of the transaction details.
Some of the ways they are used include to offer cash back in certain areas, to offer reward points, or to determine if the payment needs to be reported for tax purposes.
The MCC Code : Who Obtains This Code and When Do They Receive It?
Any merchant can receive one of these codes. They’re typically assigned a code when they start working with the credit card company to accept credit card payments. This often happens when they are first opened, but can happen later if they initially only accept cash payments. The code will be automatically assigned to them based on the type of business they have or the types of products they sell.
How is the Right Code Determined for Each Business?
There are a large number of codes a business can potentially receive when they’re assigned a category code. These are going to be based on the type of business they have and different businesses will have different codes. For instance, a business that offers bus tours to customers is going to have a completely different category code compared to a restaurant. Legal services and hospitals will have unique codes as well that help identify the type of business they have. If a business doesn’t have the right code, their customers might have trouble receiving the right amount of cash back or rewards points, or it could cause issues with the credit card companies determining the taxes for purchases through the business.
How Can a Business Determine What Code They Should Use?
Businesses can speak with the credit card company representative to learn more about what code they’ll need to use when they process credit card transactions. They’ll typically learn what their code is before their first transaction. However, if they are worried that they received the wrong code or if any of the information they receive doesn’t match the type of business they own, they will want to contact the credit card company and request a review to ensure it’s the right code. They can also look up the codes for the credit card companies to find out more about whether they’ve received the right code or if another one might be a better fit.
How is it Used to Determine Cash Back?
Credit card companies will often offer cash back rewards for around one to five percent of the total purchase price, up to a certain amount each month. To determine which payments are applicable, they’ll use the MCC Code. The code is sent in with the rest of the information for the transaction so it’s easy for the credit card company to determine if the purchase is eligible for cash back and, if so, how much cash back the person should receive if the amount is based on the category for the purchases. For instance, if the credit card company is running a special that says a person receives three percent cash back for any grocery purchases, then any purchases that have the code for grocery stores will be applicable for the cash back reward.
How is it Used to Determine Rewards Points?
Instead of offering cash back, some credit cards have rewards points. These could be applicable only for special offers from the credit card company or they can include sky miles, hotel points, and more. Often, there will be different amounts of rewards points for a purchase depending on the category the purchase was made in. The credit card company applies this the same as they would for determining cash back but, instead of receiving money back, the person has the proper amount of points added to their account.
How are Tax Requirements Determined?
Tax categories for credit card companies can be incredibly complex. Some products fall under certain tax categories while others might not be applicable for taxes. A credit card company needs a valid way to determine which purchases need to be accounted for with their taxes and which ones are exempt from taxes. The merchant code can be used for this and can help the credit card easily determine what the tax status is for every purchase made from the huge number of businesses they work with.
The MCC Code is an effective way of tracking the purchases made on credit cards and can be useful for a variety of purposes. It’s important for any business owner to understand why this number is necessary and how it could be used. Take the time to learn more about these codes today to learn how they can impact your business and why being assigned the right one is imperative.