Let us say I have a Credit Card that gives 2% cash back on any purchase with Unlimited cash back.

Now let's say I also own a business where I'm charged a small transaction fee say 1% of the total value of the swipe.

Is it illegal for me to just max out my credit card paying myself.

So say in a given month I pay myself $10,000 with this credit card. I lose $100 to credit processing fees, but my rewards program gives me $200 so I net $100.

Any foreseeable problems?

  • 6
    Do you actually have a card processor that only charges 1%? – JTP - Apologise to Monica Sep 17 '17 at 2:06
  • JoeTaxpayer. Using these numbers as hypothetical but I have found a card processor that claims an amount less than a certain card's reward amount. – MrRoboto Sep 17 '17 at 14:05
  • I'm not familiar with business tax law, but wouldn't you have to declare all of the money your business received as profit, and then pay taxes on that? Pretty sure that would eat away at any money you've made. Someone correct me if I'm wrong. – curt1893 Sep 18 '17 at 17:10
  • Good point curt1893 I had not considered that – MrRoboto Sep 18 '17 at 21:13

This is basically a form of credit card kiting, it's not necessarily illegal but it can be. It is, however, against the TOS in pretty much every merchant agreement (including Paypal and Square), so you'd most likely have your account suspended, and the merchant could pursue legal action if they felt they could prove intent to deceive.

It's not practical given actual fee structures, but even if it were, most merchants are quite good at detecting this sort of thing and quick to shut down accounts.

| improve this answer | |
  • Thank you. I feel like this answered the core question of if you did find a fee structure that made this possible what the problems would be. – MrRoboto Sep 17 '17 at 14:14
  • You would also, I suspect, have problems (or at least have to be very careful) in how you put things through the "books" of the company. Inventing "phantom" sales (to have something to charge on the CC) would almost certainly be counter to acceptable accounting practices. – TripeHound Sep 18 '17 at 9:32

The idea is old as dirt, and some millions of people had it before you.

Credit card swipes cost you between 2.4 and 4.5%, depending on the cards, the provider, and the amounts, plus potentially a fixed small amount per swipe. Of course, a 2% cash back card cost more than 2% to swipe; and a 3% cash back card cost more than 3% to swipe; those guys are not morons.

| improve this answer | |
  • What about services like Square? According to this page: squareup.com/pricing They claim 2.75% per swipe no extra fees. Assuming you could get a card with a higher percent back does that mean they would actually charge more to handle transactions for that card? – MrRoboto Sep 17 '17 at 14:09

Not the answer you're looking for? Browse other questions tagged or ask your own question.