What Are Merchant Category Codes (MCCs)?
Merchant category codes (MCCs) are four-digit numbers that credit card issuers use to classify individual purchases according the type of merchant where they were made. The codes serve a variety of purposes, including the calculation and issuance of credit card rewards.
Key Takeaways
- Merchant category codes (MCCs) are four-digit numbers assigned to different types of businesses.
- MCCs are used for a variety of purposes in credit and debit card transactions, including tax reporting and calculating consumers' cash back rewards.
- MCCs can also affect how much a merchant must pay when it accepts credit or debit cards for payment.
Understanding Merchant Category Codes
Every transaction you make with a credit card is assigned a merchant category code based on the type of business involved.
Those MCCs can be used for a number of purposes. In addition to helping card issuers calculate the rewards that consumers are entitled to for their purchases, they can indicate whether a business needs to report a particular transaction to the IRS. In addition, theycan affect the fees that the merchant must pay to accept payment cards.
MCCs are based on International Organization for Standardization (ISO) codes and Standard Industrial Classification (SIC) codes for different types of businesses, but the card networks may adapt them for their own purposes. For example, Visa notes that, "In many cases, Visa has consolidated several SIC codes into one MCC to manage the number of MCCs. In other cases, such as for T&E and direct marketing merchants, Visa established MCCs that do not have corresponding SIC codes."
While many MCCs are recognized by all card issuers and processing networks, others can differ from one to another. Some merchants that offer a range of products and services may be assigned multiple MCCs. The codes are also subject to change over time.
Here are some common examples of how merchant category codes are used.
- If a consumer has a credit card that offers 3% cash back on airline travel, they should receive that reward on any purchase that is classified under MCC 4511, a designation for airlines and air carriers.
- If a company purchases services from another company or from an individual who is not one of its regular employees, it must report that to the IRS and issue a 1099 form to the service provider if the payment exceeds a certain amount. Companies do not have to report the purchase of products in that manner. For purchases made with a credit card, the company can use the recipient's MCC to determine whether or not the transaction is reportable.
- The MCC assigned to a business can also dictate the interchange fee it must pay to its card processor on transactions. For example, a business classified under the MCC for gas stations but happens to rent cars may pay higher or lower fees than one that's classified as a car rental company.
Note
Some merchants, such as airlines and hotel chains, can have unique MCCs all to themselves.
Examples of Merchant Category Codes
These are some of the MCCs related to travel and transportation used by Citibank.
| Some Citibank MCCs for the Transportation Industry | |
|---|---|
| MCC | Description |
| 4011 | Railroads - Freight |
| 4111 | Suburban and Local Commuter Passenger Transportation, Including Ferries |
| 4112 | Passenger Railways |
| 4119 | Ambulance Services |
| 4121 | Taxicabs and Limousines |
| 4131 | Bus Lines |
| 4214 | Motor Freight Carriers, Trucking, Moving & Storage, Local Delivery |
| 4215 | Courier Services and Freight Forwarders |
| 4225 | Warehousing or Storage of Farm Products, Refrigerated & Household Goods |
| 4411 | Cruise Lines |
| 4457 | Boat Leases and Rentals |
| 4468 | Marinas & Marine Service/Supplies |
| 4511 | Airlines and Air Carriers |
| 4582 | Airports and Airport Terminals |
| 4722 | Travel Agencies and Tour Operators |
| 4784 | Bridge and Road Fees and Tolls |
How Consumers Can Use MCCs to Maximize Their Rewards
Individuals with rewards cards can earn greater rewards if they know theirMCCs.
Suppose you havea credit card offering3 points for every $1 in you spend at restaurants. The way the credit card company determines whether your transactions took place at a restaurant is by looking at the MCC. If youbuy lunch at a small mom-and-pop establishment that combines a restaurant with a grocery store, and the MCC classifies the business as a grocery store, you won't earn 3 points per $1 on what youthought was a restaurant purchase but just whatever your card pays on grocery purchases (if anything).
However, if you visit this establishment frequently, you could use a different credit card, perhaps one that gives you 3% back on grocery store purchases, to maximize your cash back.
The same applies if you buy your groceries at a big-box store like Walmart, which may or may not entitle you to the same rewards as a regular grocery store, depending on the MCC assigned to it.
In addition, if a credit card issuer fails to give you the correct amount of points or cash back despite an MCC that should have triggered the proper bonus, you can use that information to ask that it rectify the error.
How Can You Find the Merchant Category Code for a Business?
Your monthly credit card statement may indicate how each of your transactions was classified. However, rather than showing the MCC, it is likely to list a category name (such as "grocery stores" or "drug stores"). If you want to know the specific MCC that your card assigns to a particular merchant, the card issuer should be able to tell you or the merchant itself may know. Merchants who aren't certain what MCC is assigned to them can find out by contacting their card processor. In addition, some card networks and issuers publish lists of their merchant category codes online.
What Is an Interchange Fee?
Each time a customer uses a credit or debit card in a transaction, the merchant must pay an interchange fee to compensate the card network and card issuer. Interchange fees are also referred to as swipe fees.
What Is a 1099 Tax Form?
A 1099 form is a federal tax form that's used to report types of income other than wages from a job (which are reported on W-2 forms). The payer, such as businesses, supplies this information to both the IRS and the income's recipient.
There are a variety of different 1009 forms in use today. Form 1099-INT, for example, is used to report interest income, while a 1099-DIV is for dividend income. When businesses pay non-employees for services, they must report that on a 1099-NEC if it exceeds a certain amount, currently $600.
The Bottom Line
Whenever you use a credit or debit card to buy something, the card processor will assign the transaction a MCC number based on the type of merchant. While this generally takes place behind the scenes, it is worth knowing about if you have a card that pays rewards, particularly one with different levels of rewards for different kinds of purchases.
Article Sources
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Visa. "Visa Merchant Data Standards Manual," Page 25.
Internal Revenue Service. "Internal Revenue Bulletin: 2004-31."
Visa. "Visa Merchant Data Standards Manual," Pages 29-47.
Citibank. "Merchant Category Codes."
Internal Revenue Service. "Reporting Payments to Independent Contractors."
