Is Manufactured Spending With Square Cash Illegal?

Manufactured spending is it illegal? For the most part it is legal, but when you start transferring money around things start to get a bit difficult. Recently a new way to manufacture spend has opened up for us. Many of you probably read about it on another blog, with almost everyone talking about Square Cash. The thing that none of these blogs tell you is that you can get into big trouble if you don’t know the law!

 

What is Square Cash

First lets talk about all the hype on Square Cash. Square Cash is an extension of the company Square Inc., which lets your small business accept credit cards on your iPhone. Square Cash on the other hand lets anyone send and accept money for free through email when using a Visa or Mastercard debit card. Square also lets you transfer up to $2500 a week. This lets us mile seekers with debit cards rack up some easy miles with cards such as:

  • Bank of America Alaska Airlines (1 mile / $2 spent)
  • Suntrust Delta (1 mile / $1 spent)
  • UFB Direct American Airlines (1 mile / $2 spent)

How this works is in the address field you enter your friends email address. In the cc field you enter cash@square.com, in the subject field enter in the amount you are sending. It should looks something like this highlighted in red.

 

square cash

 

You do not need to write anything in the body of the message if you don’t want to.

Here is what happens next:

  • If you haven’t used this service yet you will receive an email from square requesting to link to their service.
  • You will also be asked to enter in your debit card information.
  • After Square has verified that you have sufficient funds in your account, your friend will receive 2 emails. One from you and the second one from Square saying that you are sending money.
  • If they accept the payment and it is their first time they will have to enter in their debit card information.
  • Once their account is verified the transfer is made and the money will show up in their account with 1 to 2 days.

 

What you should be worried about when using Square Cash

So what are the cons about this way of manufactured spending? Square is very vigilant in fighting fraud and will shut down accounts quickly if they suspect anything funky is going on. So if you are trying to send money to yourself using multiple email accounts and bank accounts, they will catch on and shut you down. If you are constantly sending money to your friend and they send it back to you, they will probably shut you down too.

 

Aside from them suspecting you of fraud, shutting down your account and leaving your money in limbo for a while, the big thing to worry about, is the IRS! This is my main concern that none of the other blogs warn you about and some of you may have already broken the law. When sending money to anyone, no matter what the means of transfer is, the IRS considers this a gift. So sending someone money using Square Cash is considered a gift in the eyes of the IRS. With the IRS you are allowed to send up to $14,000 to each individual per year without reporting it and getting taxed. This means that you can send $14k to friend A and $14k to friend B, etc.

gift tax

Like I said before if you continuously send money back and forth to and from the same person your account will probably get flagged and shut down.  However if you do it once in a while you will lower the amount that you have gifted that person.

For example:

  • if you gift friend A $2500 in week 1, 10, 18, 30,  and week 43 that would be $12,500
  • Friend A then gifts you back $2500 on week 7 and week 24 that would be $5,000
  • You are now allowed to send them another $7,500 for the rest of the year to max out the $14,000 gift limit without getting taxed.

Again none of the blogs tell you this and I haven’t seen it posted on the forums as a caveat. They just talk about how much miles you could earn.  For example: if you send $2,500 a week for 52 weeks, you get 130k Delta miles, 65k American miles, or 65k Alaska miles.

Don’t get me wrong this is a great way to manufacture spend, but it should come with more of a warning or a more in-depth way of doing this. When using Square Cash for manufactured spending remember you can only send $14k per person. If you would like to find out more about what the IRS considers a gift you can check it out here. Manufactured spending isn’t for everyone, so please learn in the ins and outs before attempting to do so.

If you found this information useful, please subscribe to get updated on great deals, tips and stories. As always thanks for reading, keep adventuring and safe travels.

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