Banking Terms - Set 9 (Payment Gateway, Withholding, TAN, RAN, Pay-as-you-earn)

Tax lien

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belong to such person.

Ex: If xyz company didn’t pay tax for current year, Govt has right to collect tax by selling its property.

Revenue Anticipation Note (RAN)

A municipal bond that is repaid with expected revenues from the project being financed by the bond. RANs have a maturity of one year or less and the expected revenue can come from a variety of sources, such as sales, fees or rate increases. Typically, RANs are used to raise money immediately to finance a large project.

Ex: Suppose Government want to help farmers by constructing a Mart from them in various locations. They will issue bond with 2% interest and payable in future, and it will repay bond buyers from rents of mart.

Tax Anticipation Note (TAN)

A short-term debt security issued by a state or local government to finance an immediate project that will be repaid with future tax collections. State and local governments use tax anticipation notes to borrow money, typically for one year or less and at a low interest rate, in order to finance a capital expenditure such as the construction of a road or school. The government then uses the following year's tax revenue to repay the TANs.

Ex: Suppose Government needs 100cr to cover budget deficit, it will issue bond with 6% interest and payable at next May, so it can pay out from tax collected in March. This bond will be paid first from collected tax amount.

Withholding ("Pay-as-you-earn" taxation)

Also known as the FIT: federal income tax withholding. This is pay-as-you-earn taxation. Taxes are taken out of your wages or other income before you receive the money. They are deposited in an IRS account and you are credited for these taxes when you file your return. Taxes also may be withheld from other income, such as dividends and interest.

For example, You have bought 10 shares from IBM each worth 10$. After 2 years, you sell all of them (each worth 20$ now). You get the profit of 100$. Based on the Government's withholding percentage (for example 28%), you are required to deduct the amount from your income (100$) and pay 28$ to the Government. It may be refunded if it is determined, when a tax return is filed.

Payment Gateway

A system of technologies and processes that allow merchants to electronically submit payment transactions to the payment processing networks. Payment Gateways help other Processors conduct secure business on the internet using Secure Socket Layer (SSL) technology. They provide a system that passes credit card data, authorization requests, and authorization responses over the Internet using encryption technology.