Tag Archive for: cash payments

How Much Are Credit Card Processing Fees Costing You?

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Have you noticed signs on the counters of local restaurants offering a discounted price for cash payments? On the counters of local retail shops? What about at the pump? And maybe you’ve seen the opposite: notices that credit transactions will incur an extra fee. Maybe in the drive-thru windows of your favorite fast food joints? Why is this?

Merchants are charged credit card processing fees every time someone swipes their card. Basically, it costs money for the credit card processing company to communicate with the network and complete the transaction. To help cut costs, many companies are attempting to minimize these charges by encouraging more cash transactions. Or, they just pass the cost onto the customers.

So, cash is not becoming obsolete as some might have previously thought. This is good news for the ATM industry. It’s good news for you, too, if you are in or looking to enter the ATM machine business. 

But if you are a store owner, how much are credit card processing fees costing you? How much are they costing you as a consumer? Keep reading to learn more about credit card processing fees and how to avoid them.

What Are Credit Card Processing Fees and How Do They Work?

Credit card processing fees are the costs businesses pay to accept credit card payments. These fees cover the services of processing transactions, ensuring security, and transferring funds from the customer’s account to the merchant’s account.

When a customer makes a purchase using a credit card, the payment information is sent through a payment processor to verify the transaction. The card network (Visa, Mastercard, etc.) and the issuing bank approve or decline the transaction based on available funds and fraud checks. Once approved, the funds are transferred from the customer’s bank to the merchant’s account, minus processing fees.

Merchants are typically responsible for paying credit card processing fees. But while they absorb the initial cost, many try to recoup the expense by passing some or all of it onto the customer. 

How Much Are Credit Card Processing Fees Costing You?

Businesses

Credit card processing fees are generally 1.5% to 3.5% of the transaction ($1.50-$3.50 for a $100 sale). There are a number of factors that determine the cost including payment processor, card type, and transaction type.

Payment Processor

There are many different payment processors businesses can use to accept digital payments. Each processing company, such as PayPal, Stripe, Square, etc. sets its own rates and fee structures.

Card Type

Credit card companies like Visa, Mastercard, American Express, Discover, etc. are independent companies responsible for setting their own credit card processing fee amounts. Amex, for example, is notorious for charging slightly more than the other three major card brands.

Transaction Type

Furthermore, fees vary according to transaction type: card-present (in-person) or card-not-present (online, phone, or manually entered). This is due to differences in security, fraud risk, and processing costs.

For example, swipe, chip, and tapped transactions will be charged a lower credit card processing fee because they are more secure—the card is present. EMV chip technology and PIN verification also reduce fraud, minimizing the risk.

Online, phone, or manually entered transactions will experience higher credit card processing fees due to higher fraud and chargeback potential (disputes where the customer claims fraud or purchase errors). The higher cost also helps cover extra security measures like CVV verification and fraud detection tools.

For these same reasons, debit card transactions will experience lower credit card processing fees than credit card transactions. They are lower risk and cost less to process. 

First of all, debit transactions are lower risk for banks. There is no borrowing involved. Debit transactions pull funds directly from the customer’s bank account, so there’s no risk of non-payment or defaults like there is with credit cards. And since debit purchases use the customer’s actual funds, chargebacks are less common compared to credit cards.

And debit transactions cost less to process. Because they often use a PIN-based network, they are more direct and secure which reduces fraud risks and the need for extensive fraud prevention measures. Plus, when a debit card is used, the money moves directly from the customer’s bank to the merchant’s bank, eliminating the need for a credit extension or underwriting, which adds costs to credit card transactions.

You can use this calculator provided by NerdWallet to calculate your monthly credit card processing fee cost estimate.

Consumers

Now, while there are charts and calculators to help businesses estimate how much they’ll pay in credit card processing fees each month, it isn’t so easy for consumers. The biggest reason is because there are less transparent ways that businesses can pass the cost onto the consumer such as increasing product and service prices or reducing discounts. 

However, according to the National Association of Convenience Stores (NACS), swipe fees cost the average family $700 a year. Paying with cash can minimize or eliminate this extra cost.

How Can You Avoid Credit Card Processing Fees?

Businesses

If you feel like you are spending too much money on credit card processing fees, you can strategically choose a processor with lower markups or negotiate rates with a current processor. Sidestep avoidable fees by looking for a processor that doesn’t charge statement fees, minimum monthly processing fees, etc. And try to keep your chargeback rate to a minimum to reduce your perceived risk. High rates of chargebacks can cause providers to increase your transaction fees.

But obviously, the less credit card transactions you process, the less credit card processing fees eat into your revenue. Debit card transactions charge lower fees than credit card transactions. But you can’t really control the card type a customer uses where cards are accepted. So offer discounts for cash payments to promote cash over credit transactions.

You can also pass fees on to customers. However, there are some states (like Connecticut and Massachusetts) that have laws against credit card surcharges. In these states, it is unlawful for a retailer to add a fee to a credit card purchase to cover the processing fee. But every state allows for cash discounts. Cash discounts are protected by U.S. Code, so retailers can encourage customers to use cash over card.

Consumers

It goes without saying that if you don’t pay with a card, you, in many instances, pay less. It is not uncommon to see a discount for paying with cash or an extra charge for paying with a card. 

For example, according to a 2022 study conducted by NACS, 29% of participating convenience stores said they were offering consumers discounts for paying in cash. Convenience stores have noticed the impact the overall rising costs of goods and services have had on consumer buying behavior. “While sales and traffic have slowed as gas prices climbed, retailers continue to seek out innovative ways to provide value at the pump and inside the store to help their customers extend their paychecks and weather this period of inflated costs,” said Jeff Lenard, NACS vice president of strategic industry initiatives. 

Add to that the fierce gas price competition, and it’s no wonder we’ve started seeing two different prices at the pump: one for cash and one for card. KVUE reported that “NACS has repeatedly surveyed customers about their price sensitivity at the pump and has found that nearly half of all consumers would change their behavior to save 5 cents per gallon.”

According to convenience retailers surveyed by NACS, credit card processing fees average more than 10 cents per gallon. Therefore, not all businesses are passing the entire cost of credit card processing fees onto the customer but might, in some cases, simply be sharing it.

ATMs Can Help!

Want to encourage more cash transactions in your store? Want to transition to cash only? Both are possible by installing an ATM in your store or business. We make it easy to get started. 

You can purchase a machine for your location and earn the surcharge fee on withdrawals on top of avoiding credit card processing fees. Or, we can match you with a professional who will place and operate an ATM in your location hassle-free—for free! If you’re ready to save money on credit card processing fees, click here to get started today.

Are Credit Card Interest Rates Keeping You in Debt?

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“[Banks] own your butt, and you gave them the deed! Don’t give them the deed to your butt! They own you!” –Dave Ramsey

Credit card interest rates continue to rise, yet consumers are still spending. Why? Well there are a number of factors that contribute to Americans’ trillion dollars of credit card debt. Lower income households are struggling to stay afloat, especially after the Covid-19 pandemic. Many people continue to live and spend outside of their means. Credit card interest rates are at an all-time high. And credit card companies profit from keeping you in debt. 

This article will explore the tactics used by credit card companies to increase their profits and keep you in debt. We’ll also share ways to avoid credit card interest rates to get and stay out of credit card debt. 

As Dave Ramsey says, “You can make it without these things. Get you a debit card. Pay cash for it.” Here’s how:

How Bad Are Credit Card Interest Rates?

Basically, credit card interest rates determine how much extra you’ll pay if you carry a balance on your card from month to month. And, according to Bankrate, that’s the case for about 1 in 2 credit card holders. 

The Federal Reserve’s string of interest rate hikes lifted the average credit card rate to an all-time high of more than 20%. Credit card fees increased despite Joe Biden’s move to cap credit card late fees in March 2024. The financial industry responded by filing multiple lawsuits against the administration. 

Increasing credit card interest rates, in addition to steadily high inflation and the cumulative increase in prices over the last three years, leaves many households in a bind, says Greg McBride, chief financial analyst at Bankrate.com.

Credit cards have become one of the most expensive ways to borrow money. So why do people still use them? Well, aside from struggling to afford emergency and unplanned expenses, credit card companies intentionally mislead and manipulate borrowers. More on that next.

Why Americans Continue to Use Credit Cards

People continue to use credit cards. They offer convenience, financial flexibility, and various benefits that other payment methods often lack.

Credit cards are easy to use for both in-person and online purchases. They reduce the need to carry large amounts of cash. And automatic billing for subscriptions and recurring expenses simplifies payments.

There are also often a number of perks associated with using a credit card. Many credit cards offer cashback, travel points, or rewards for specific spending categories. Some provide perks like airport lounge access, travel insurance, or extended warranties. 

But Bankrate reported that the most common reasons for credit card debt include emergency and day-to-day expenses. Among respondents surveyed who carry a balance on their credit card(s), 47% say the primary cause was an emergency/unexpected expense(s): 15% named emergency/unexpected medical bills; 9% emergency/unexpected car repairs; 7% emergency/unexpected home repairs; and 16% other emergency/unexpected expenses. Twenty-eight percent cited day-to-day expenses such as groceries, childcare, and utilities as the primary cause.

Yes, credit card use can help build a positive credit history. Credit history is often crucial for securing loans, mortgages, and even some jobs. And paying on time and keeping balances low can improve your credit score. But this is only the case if credit cards are used responsibly and borrowers can avoid or minimize credit card interest rates. And, unfortunately, credit card companies actively work to prevent this. 

Why Credit Card Companies Want to Keep You in Debt

The bottom line is that credit card companies make money from credit card interest rates and other “junk fees”. Junk fees are extra charges that businesses add to the cost of a product or service. They often come with little explanation or transparency. These fees might include service fees, convenience fees, processing fees, late fees, etc. 

So the more products you purchase, the more credit card debt you accrue, and the harder it becomes for you to pay it off or get on top of it, the more money credit card companies make. 

Elena Botella, before resigning from her position with Capital One, questioned how raising credit card interest rates “radically” improves people’s lives. And this, she says, was one of the company’s “pie in the sky” goals. At the end of the day, it was just another way for the company to make more revenue. 

According to Bilal Beydoun, Director of Policy and Research for Groundwork Collaborative, credit card companies profit from predatory pricing. He defines this as “algorithmic-driven pricing,” or what you might have heard called “dynamic pricing”. Many companies were able to exploit the economic emergency created by the pandemic by raising their prices, contributing to inflation. So when you purchase a product at an inflated price and carry a balance at, say, 35% APR, you become a victim of what Beydoun refers to as “corporate profiteering.” The already inflated purchases you are charging follow you the rest of the year and cost you more and more every month.

Isn’t Credit Card Debt a Choice?

Most people believe that people who take out loans or open credit cards make that choice and should therefore be responsible for it. But Botella argues that most people wouldn’t make that choice if they had all of the information that credit card companies have. After leaving Capital One, Botella travelled the country looking for stories about the experiences of people living with debt and how they had been affected by the choices credit card companies like Capital One were making.

At one point in her career with Capital One, Botella was on a team where she was tasked with conducting experiments to see how much money the company could extract from people. “The bank is doing those experiments to measure, like, how much debt can I get somebody in, up until the point that they’re going to be in so much debt that they default because of that extra debt burden?” she explains. 

Botella believes that credit card companies are taking advantage of the fact that most people don’t understand the whole picture. “The two parties are operating with just completely different sets of information,” Botella says. “So they have a specific estimate: this person is going to get into $13,000 of debt. And over the next five years, they’re going to pay $8,000 worth of interest, whatever the case may be. They know that and you don’t and would you make the same decision if they just told you that?”

And raising credit card interest rates isn’t the only strategy credit card companies use to keep consumers in debt. Remember those perks we listed earlier? Just how much are you rewarded for the thousands of dollars the credit card company makes off of you? 

Understanding Credit Card Company Tactics

Capital One in particular has been penalized for practices like targeting people with low credit scores, tricking them into buying add-on services like credit and payment monitoring they didn’t actually need, and leading them to mistakenly believe that those things would improve their credit. But you have to understand that credit card companies are for-profit businesses. They will aim to increase their profits every year.  

“No one should be surprised that credit card debt hit another record high,” says Matt Schulz, chief credit analyst at LendingTree. And “there’s very little reason to believe that we won’t continue to see new credit card debt records being set going forward.”

Junk Fees

Rohit Chopra, former Commissioner of the United States Federal Trade Commission, has made big strides as Director of the Consumer Financial Protection Bureau (CFPB). He’s been particularly concerned with regulating excessive fees levied on people by credit card companies and banks. “We put out a rule…regarding credit card junk fees. And so what we found was that there was a loophole that the credit card companies had been abusing for years and years and years to extract an extra $27 million a day, $10 billion a year,” Chopra says.

Credit card junk fees might include anything like annual fees, balance transfer fees, late payment fees, foreign transaction fees, etc. Although, a staggering majority of credit card company profits comes from credit card interest rates ($105 billion out of $130 billion in 2022) rather than from junk fees.

Devaluation of Points

And those points and travel perks credit card holders are so quick to tout? Chopra has plans to reform how credit card points are used, too. “Well, we were actually pretty worried about these credit card companies engaging in massive devaluation of points. They want to say you’re going to be able to use this for free round trips, and then you try and use it and it’s almost worthless. That is not right. So we are actually trying to make sure that the promises are being kept,” he says.

Unethical Practices

Credit card companies have been caught opening up authorized accounts and making serious billing errors that they failed to correct until people reached out. And, believe it or not, Citibank is one example of application discrimination. They analyzed applicants’ last names under the impression that anyone with an Armenian-sounding name would somehow be a poor applicant. “So you simply cannot leave these credit card companies to their own devices,” says Beydoun, “because that almost certainly will lead to some of these practices that we just went through.”

So what can be done?

Why Paying in Cash Avoids Credit Card Debt

To combat credit card interest rates, it’s important to make sure you stay educated about how credit cards work. Read the fine print, ask questions, remain vigilant, and do your research. And of course, avoid credit cards altogether if possible. It’s easier said than done, but remember that the higher your balance, and especially the higher the balance you carry from month to month, the more debt you accumulate in credit card interest rates.

Paying with cash or debit can minimize credit card debt by promoting more intentional spending and reducing reliance on credit.

First, it minimizes impulse spending. When you use cash, you physically see the money leaving your wallet, which can make you more mindful of your purchases. This often leads to better budgeting and less overspending.

Credit cards can create a “buy now, pay later” mentality, encouraging spending beyond your means. Using cash sets a clear limit — once it’s gone, you can’t spend more without actively seeking additional funds. This helps limit overspending.

By using cash for everyday expenses, you reduce the need to put small purchases on your credit card. This helps you focus on paying down existing credit card balances without adding to them, thereby avoiding credit card interest rates.

Paying with cash often requires planning, which naturally leads to better money management. Many people set spending limits by withdrawing a set amount of cash for the week or month. Sticking to a planned budget can help minimize the “need” for credit card spending.

By relying less on credit cards for daily expenses, you can allocate more money toward paying down your existing debt and prevent further debt accumulation. Using cash for non-essential purchases or setting a cash-only rule for categories like dining out, entertainment, or groceries can significantly reduce the risk of accumulating debt.

What Credit Card Interest Rates Mean for ATM Business Owners

We’ve said it before, and we’ll say it again: cash is still relevant. As banks, credit card companies, and other financial institutions get dangerously large, or, “too big to fail”, more people than ever are encouraged to keep cash on hand as a safeguard against financial uncertainty. 

Cash continues to present certain benefits like privacy, budgeting power, and emergency preparedness. Most importantly, it could be the best defense against credit card interest rates and suffocating credit card debt. Don’t let credit card companies own you!

Ready to get into the ATM game? Whether you’ve been skeptical about the relevance of ATM machines amid electronic payment options or want to make some extra money to help tamp down your own accumulated debt, get your free ATM start-up kit today!

ATM Placement: Top 13 Cash-Only Businesses

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Cash-only businesses are prime locations for ATM placements. Why? Well because of the demand for cash of course! With the prevalence of debit and credit cards and other digital payment methods like ApplePay and GooglePay and even Bitcoin, it might seem like cash is dying out. We’re here to tell you that it’s not.

Cash will always have its place in society because it is tangible, it is traditional, and it is immediate. When goods and services are paid for in cash, the transaction is over. Done. There’s no hassle, no technology, no extra fees, no paper trail, no wait time, and no reversals.

So, if you find a business that is cash only, try to get an ATM placement there. Because many people no longer carry cash unless they plan ahead. And when customers visit cash-only businesses and they don’t have any, your ATM machine then gets that business. Want to know where to find cash-only businesses? Keep reading. 

Why Are There Still Cash-Only Businesses?

It might seem shocking (and maybe even a little inconvenient at times) that there are still cash-only businesses in this age of digital payments. However, don’t underestimate the power of the dollar bill. There are many reasons why some businesses in particular benefit from cash-only payments.

First of all, cash payment is immediate. There are no declined payments, invalid PIN issues, card swipe errors, etc. to deal with. There are also no fraud claims or chargebacks to handle (and pay for whether in time, fees, or lost product). 

Second of all, electronic payments require special equipment from the card reader to the network connection. Cash transactions can be processed rain or shine, with or without electricity or internet connection. This simplifies the transaction for many small businesses and minimizes extra equipment costs. It also ensures that transactions are processed smoothly without having to worry about technical issues.

Maybe most importantly, cash payments don’t cost the business anything to process. Every time a business processes a debit or credit card payment, it has to pay a processing fee. This is why you might see some businesses charge extra for debit and credit payments; it’s to help them cover these processing fees. 

So, not only are cash payments simpler for businesses, but they are then able to pass savings onto their customers by minimizing their operational costs. If you haven’t guessed already, small, local, “mom-and-pop” businesses benefit the most from cash-only payments. Many examples of these made our list of top 13 cash-only businesses.

Top 13 Cash-Only Businesses (In No Particular Order)

Food Truck Parks

Food truck parks make the list for a few reasons. They are trendy and popping up everywhere. If you can get an ATM placement in the vicinity of food trucks (where people gather to hang out, have fun, and spend money…), you are sure to see a reward. 

Food truck parks draw large crowds, especially on the weekends. This kind of regular, predictable business can make it easier for you to manage your own ATM business. 

Because each food truck vendor is its own small business, it’s common for some to accept cash only to simplify their business model and keep operational costs to a minimum. However, even if all food trucks aren’t cash-only, access to an ATM is still beneficial as cash can speed up transactions and reduce long lines and wait times. 

Small Local Gift Shops

Two keywords here: “small” and “local”. Again, small businesses benefit the most from cash payments because credit card processing fees cut too deep into their profits. Local shops and businesses are typically inherently small because their target audience is localized and limited. 

Furthermore, gift shop inventory is usually made up of tchotchke-like items. Cash-only payments make more sense for low-ticket sales because customers aren’t as concerned about paying off purchases over time.

Farmers Markets

Farmers markets are outdoor venues. This means that many booths don’t have access to power or strong, reliable internet connection for electronic payment processing. And while there are nifty workarounds like Square, farmers and other market vendors might not be tech savvy enough to bother. Add to this the simple, back-to-basics atmosphere of a farmer’s market, and you’ve got an increased demand for cash.

Laundromats

Not only are most laundromats still cash-only, it’s also a fairly reliable industry. Just like society won’t phase out cash any time soon, we also aren’t likely to phase out laundromats. There is more and more demand for laundromats as the population increases. 

There are also no large laundromat chains. This makes it easier to get an ATM placement since a small, local business isn’t likely to have the resources to partner with a bank for ATM service like a chain would. There are card-operated machines and even reloadable laundromat cards, but these often malfunction and are out of order. You want your ATM to be available when that happens.

Coffee Shops

With coffee shops, you’re again looking for small and local. Chains have the overhead and the reliable customer-base to be able to justify the credit card processing fees. Local coffee shops benefit more from cash-only payments and aren’t expected to offer a wide variety of payment options. 

Customers of small, local coffee shops go there for a simple, personalized experience. They know what to expect. And sometimes, that “cash only” sign even adds to the appeal.

Nail Salons

This is another booming industry. Nail technology is advancing, and “self-care” has become a term eagerly adopted by many and often applied to justify beauty services. 

The salon experience is enhanced by receiving services regularly. It isn’t enough to go once; you have to maintain your look. Therefore, regular salon-goers build relationships with salon employees over time. This increases their desire to pay with cash.

Some salons are cash-only because they are small businesses; nail salon chains are rare. But even if there’s a salon near you that does accept electronic payments, those employees are still encouraging their regulars to pay with cash because of the benefits. It’s an immediate payment, there are no payment processing fees, and it isn’t automatically taxed.

Cash payments are more personal, and when a nail technician gets comfortable with a customer, it becomes easier to request cash payments. That’s why nail salons make good ATM placements.

Barber Shops

Although your local barber shop or beauty parlor is probably not a chain, your payment isn’t always going directly to that shop itself. Many barbers and beauticians pay shops to rent a chair, space, equipment, etc. 

So while we might have you convinced that credit card processing fees hurt small business profits, think of what it can do to a freelancer or independent contractor’s already miniscule income. That processing fee is basically coming out of their paycheck. This is why you will find that many barber shops and beauty parlors are cash only. 

Mom-and-Pop Restaurants

Why are mom-and-pop restaurants often cash-only? You guessed it! They are small businesses that can’t always afford to have thousands of dollars of credit card processing fees cut out of their profit. Servers also rely heavily on tips for their income. Cash tips allow restaurant employees to take money home every night rather than waiting for a paycheck.

Additionally, depending on the age and/or location of the restaurant or business, it might not be set up for electronic payment processing. The technology in the location might be outdated, and businesses in rural areas might have troubles with weak, unreliable internet connection.

Or, the owners just might not have the savvy to handle the technical side of electronic payment processing. There is the traditional aspect to consider as well: “It’s the way we’ve always done it.” Sound familiar?  

Fairs/Carnivals

Fairs and carnivals are great opportunities for mobile ATMs. You can operate your ATM business seasonally or when these events are in town. Fairs and carnivals draw large crowds, and statistically, the more people who pass by your machine, the more transactions you’re likely to see. 

People also expect to spend money at fairs and carnivals. There’s food, drink, rides, games, vendors…. And one major convenience of cash for families is that it can easily be shared among members. When your kids want to do different things, just send them each off with a few bills to spend how they please. Would you be so giving of your card?

Flea Markets

Flea markets are good places to find a demand for cash because cash makes a good bargaining token. The price of most items at flea markets is negotiable, and the thought of an immediate cash payment is tempting to sellers. If a buyer can offer a cash payment, he or she can typically get a better deal. 

Craft/Art Shows

Vendors at craft and art shows don’t have the business resources to dedicate to payment processing equipment. Artists also make freelance-style, low income, so payment processing fees become an unfair burden. 

Marijuana Dispensaries

These opportunities are becoming harder to find because of the degree of necessity of cash at these locations. Because marijuana is still illegal at a federal level, marijuana dispensaries find it difficult to get payment processing companies (which are federal institutions) to work with them. Similarly, dispensaries are unable to operate their own ATM machines. 

This means that cash is the number one form of payment for marijuana dispensaries, and they are also top locations for independent ATM machines.

Christmas Tree Lots

A Christmas tree lot today, a fireworks stand tomorrow, these locations are great opportunities for mobile outdoor ATM machines. Due to the temporary, outdoor setting, electronic payment processing equipment can be an unnecessary hassle for these business owners. And, of course, Christmas Tree Lot Bob is in business for himself; he doesn’t want to pay credit card processing fees….

How to Find Cash-Only Businesses

Now you know what kinds of businesses are typically cash only, but how do you know which ones are near you without driving all over town?

Of course, you can check a business’s website to find out what forms of payment they accept. But this assumes that you already have an idea of a particular business or you’re just spending a ton of time online researching any business that comes to mind.

You can narrow your search by using online directories like Yelp and Yellow Pages and maybe even apply a “cash only” filter. Google Maps can provide you with business information, too, and can even go a step further by letting you know if there are already ATMs in the vicinity.

Other sources that can provide you with a business’s payment options include social media profiles and pages, personal experiences of family and friends, and review sites and forums like Reddit. But maybe the quickest, most efficient method is to simply conduct a web search: “cash-only businesses near me” or “cash-only businesses in (city) (zip code)”.

The most effective method is to call or visit a business in person. But again, for the sake of efficiency, you might do this in conjunction with another method above so that you only spend this time pursuing previously vetted leads.

How to Negotiate ATM Placement at Cash-Only Businesses

Negotiating ATM placement at cash-only businesses comes down to listing the benefits of cash payments. By placing an ATM at any small business, you encourage cash payments which minimizes credit card processing fees, pass the savings rather than the burden onto the customer, and avoid turning away cashless customers. 

Keep in mind, you don’t always have to look for strictly cash-only businesses for a good placement opportunity. You could find a small business that currently charges a fee for electronic payments. Or a small business that wants to move to cash only. All of these situations are good opportunities for ATM placement because of the demand for and benefits of cash. 

For more ATM machine placement and negotiation tips, check out ATMDepot.com’s Member’s Area where you can gain access to scripts and other helpful resources.

Cash App Taxes Could Increase ATM Usage

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Cash app taxes could increase ATM usage. Many small businesses, freelancers, and those employed in part-time work who rely on cash apps, or payment applications, might have a new tax form to file next year. 

Now, just $600 in online payments will trigger form 1099-K. What does this mean for payment app users? What does this mean for independent ATM deployers (IADs)? 

Well, increased tax reporting and scrutiny could push many small businesses and self-employed individuals to encourage or limit themselves to cash transactions. And more cash transactions means more cash withdrawals and more ATM business.

What are Payment Apps?

Payment apps allow person to person (p2p) transactions. Whether payment is for goods and services or for monetary gifts or reimbursement, payment apps are a quick, convenient, free way to send money to people you know and trust. 

Payment apps are popular alternatives to cash because they allow users to pay for goods and services and share money among friends and family without needing to carry a wallet. Payments are now immediate. You don’t have to worry about going to the bank or about someone forgetting to “get you back.” 

Payment apps work by linking debit cards, bank accounts, and sometimes credit card information and securely storing it to send and receive money right from your phone. No wallet needs to be present, you aren’t limited to in-person transactions, and in some cases payments can even be made internationally.

The biggest draw is that they are free to use. The only nominal fees are for expedited or extra services.

What are the Most Popular Payment Apps?

The convenience of payment apps has made them quite popular. Some of the most popular payment apps in 2022 are PayPal, Venmo, Cash App, and Zelle. Each of these payment apps has millions of active users all over the world. And many people use more than one depending on their needs. 

Each app has its own niche, if you will. PayPal is the oldest payment app. It has earned the public’s trust because of its strong encryption technology used to keep user accounts secure. PayPal is a good option for freelancers and other business purposes because it offers an invoice feature that can be used to specify the nature of purchased goods and services.

Venmo is the most popular payment app for exchanging small amounts of money between friends and relatives. Need to spot a friend $5? Venmo. Need to pay your share of the rent? Venmo. Splitting a dinner bill? Venmo.

Cash App is another hassle-free way to send small amounts of money to contacts. Cash App doesn’t offer the social aspect Venmo does (a feed of who sent money to whom and for what). But it does offer users a digital wallet that enables the buying and selling of bitcoin. 

Zelle can be used independently as its own app. Most Zelle account holders, though, use the app through their banking app. Banks like Chase, Bank of America, and Wells Fargo use Zelle to allow their customers to send small amounts of money safely from their bank account. 

In order to use one app, both sender and recipient have to have it. So this can cause some people to have active accounts with multiple payment apps at one time.

Do Cash App Taxes Apply to All Transactions?

You might have heard about cash app taxes from unnecessarily worried peers or even seen something in the news. However, very little is actually changing in terms of tax laws.

Monetary gifts and reimbursement are still considered non-taxable income. So only those who receive payment for goods and services through a third-party app should expect to file a 1099-K form with their 2022 taxes next year.

What is a 1099-K Form?

Form 1099-K is a tax reporting form just like many others everyone has filed in their lifetime. It provides the IRS with information about the gross amount of payment transactions a person receives via third-party payment networks (like the ones listed above). 

The Good News

You are probably already familiar with this form if your gross payments exceeded $20,000, and you reported earnings if you had more than 200 payment transactions. The difference now is that rather than the $20,000 threshold, it’s $600. And rather than 200 transactions, the minimum is 1.

What this means is that more people will be filing form 1099-K next year than previously. More people receive at least $600 worth of income in a year paid via payment app than those who receive over $20,000.

These payment app companies are required to send a 1099-K to the tax filer as well as to the IRS. This actually simplifies tax filing! Say a freelancer or part-time worker has multiple streams of income paid through three different payment apps. Rather than hunting down and documenting information for each app separately, form 1099-K contains information about the gross amount of payment transactions made on any and all qualifying third-party payment networks.

So, whether individuals receive one $600 payment in exchange for goods or services or they receive thirty $20 payments, they should expect to receive a 1099-K form by January 31, 2023.

The Bad News

The problem is, it is possible for this form to reflect both taxable and nontaxable transactions. To prevent confusion and delayed tax filing, it might be a good idea to separate business and personal accounts. Otherwise, someone might end up paying more taxes than necessary. And to make sure they don’t, they’ll need to look at the information carefully and compare it to their (hopefully) carefully maintained records….

Those who only receive $600 via digital payment apps in a given year might not see the importance of separating this income from personal gifts and reimbursements or of maintaining records of it. Now that more people will have an extra form to file next year, more people might dread the extra time and responsibility of discerning the information.

However, self-employed individuals are and always have been required to report all earnings to the IRS when filing their tax returns. So those who aren’t trying to break the law don’t have anything to worry about!

Unfortunately, there could be a number of people receiving form 1099-K by mistake. Take, for example, the bride who worried that monetary gifts she received to help fund her honeymoon would be reported to the IRS and taxed. If she were to receive a 1099-K form, all she would have to do is prove that the money she received through digital payment apps was gifted and therefore nontaxable income.

Although this burden of proof might not be so easy for some people, it should be relatively easy to rectify. Mistakes should be reported to the third-party digital payment company who issued the payments. They will resolve the issue, not the IRS.

Why Are Cash App Taxes a Thing?

2021 American Rescue Plan Act

This new law concerning payment or cash app taxes is part of Joe Biden’s 2021 American Rescue Plan Act which was passed by the Democrats in March 2021. (You might be familiar with the additional stimulus payments, enhanced unemployment aid, and expanded child tax credit also covered by this bill.) 

As a result of the American Rescue Plan Act of 2021, any transactions made after March 11, 2021 that exceed $600 must be reported to the IRS, regardless of the number of those transactions. Prior to this legislation, third-party payment platforms would only report users who had more than 200 commercial transactions and made more than $20,000 in payments over the course of a year.

It’s important to remember that this bill doesn’t change tax laws, it only changes income reporting. Self-employed individuals have always had the responsibility of reporting income from all sources and paying taxes on it. Now, there is just another form in the mail, and it might include nontaxable income if people aren’t careful.

The purpose of this bill is to cut down on tax evasion. It allows the IRS to keep track of transactions made through payment apps that often go unreported. This digital trail keeps freelancers and other self-employed or part-time workers from not reporting or underreporting their earnings.

Tips for Taxpayers

In order to accurately report income, these apps will need additional information. They will need either an Employer Identification Number (EIN), Individual Tax Identification Number (ITIN), or Social Security Number (SSN). If this information is not already on file with the digital payment apps people use, they will be reaching out to users to confirm tax information due to this new law.

Remember, too, that only money received in exchange for goods and services should be reported and taxed. Nontaxable income includes monetary gifts (birthday, holiday, wedding), split bill payments, and other reimbursements. Any items sold at a loss are also nontaxable. Examples are items sold at a garage sale or on Facebook Marketplace. 

But those who purchase new items and resell them for profit should expect to report that income to the IRS. If they don’t, and they receive payment through a payment app, the IRS will know.

The new law requires that form 1099-K go to both the taxpayer and the IRS. So, there is a good chance that they will notice any discrepancies between federal income tax returns and income reports. Therefore, it’s important for individuals to report their taxable income and keep good records.

What Do Cash App Taxes Mean for IADs?

This new legislation affects anyone who receives earnings through digital payment apps instead of direct deposit, paper check, or cash. Those most likely to accept these types of payments are small businesses, freelancers, minors, and other self-employed, part-time workers.

About 1 in 4 Americans makes extra income online. It might be from selling something, renting something out, or providing online services. And global transactions associated with the gig economy are projected to grow to about $455 billion by 2023.

So anyone who doesn’t want their online income reported directly to the IRS will need to conduct more business using cash. Not to mention minors who earn income from mowing lawns, babysitting, caretaking, and other odd jobs.

It seems some kids will be learning about taxes a lot sooner than most. And it could result in their guardians covering these taxes, too. This is just more encouragement for minors and other part-time, odd-job workers to revert to relying on more cash payments. And that’s good news for the ATM industry.

Cash is King

We never believed that digital payment apps would replace cash to the extent that it becomes obsolete. This just confirms what we’ve been saying all along: Cash is king! 

It’s safe, it’s private, and it’s universal. Everyone has it, everyone can accept it, everyone can spend it. And as long as cash has a place in society, so will ATM machines and ATM businesses!

Convinced that there is no better time than now to start or scale your ATM business? ATM Depot can help. Contact us today to get started!