Paying taxes by credit card will cost you
The IRS accepts plastic but, unlike mechants, it doesn't pay the fee for you to use it, which is up to 2.35%.
This article is by Mark Jewell of the Associated Press.
Use a credit card to pay taxes to Uncle Sam, and interest charges aren't your only worry. Expect to pay fees of at least 2% on the amount of taxes owed. And that has nothing to do with whether you pay off the balance quickly or not.
Those fees are big enough that using a card to pay should be a last resort.
Regardless of how big the tax bill, any convenience from paying by credit is likely to come at a steep price. That's important to understand because some card issuers are promoting use of their cards to pay taxes, including offering discounts on electronic tax filing products for those using plastic to pay.
With tax season shifting into high gear, here's a look at the fees:
Why the fees exist: The Internal Revenue Service says it has contracts with three companies that handle card transaction-processing for tax payments. A 1997 law bars the agency from paying anything to the companies, and the IRS doesn't receive or charge any fees for card payments. The companies collect fees directly from the taxpayers for serving as the middleman, and in turn forward payment to the IRS posting to taxpayer accounts.
A similar process occurs with retail credit card purchases. The retailer might get only $9.80 or so from a $10 purchase. The rest goes to the transaction-processing company and the card issuer. The retailer agrees to the arrangement on the presumption that customers are more likely to buy where paying by credit is an option. With tax payments, the taxpayer directly covers those processing costs.
How much: The charges -- called convenience fees -- range from 1.95% of the amount of taxes paid to 2.35%. At the highest rate, a $1,000 tax bill would be $1,023.50, with the fee added in.
The companies that provide the payment services are: Link2Gov Corp.; RBS WorldPay Inc. and Official Payments Corp. Details on each company's fees, and the tax-payment websites and toll-free phone numbers the companies operate can be found here.
Taxpayers who choose to make tax payments with a debit card are assessed fees per transaction, from $3.89 to $3.95. The card must be a Visa debit card or an NYCE, Pulse or Star debit card.
Other details: The IRS says taxpayers must be informed of the fees before any payment is authorized. The companies' websites offer online calculators to determine how big the fees will be for a given credit card payment.
Credit card payments can be made by phone and online through the payment-processing companies. Tax preparation software and tax-prep professionals also often are set up to accept credit cards.
Reminder: The balance added to your credit card from a tax payment can trigger interest charges, as with any other expense.
Silver lining: The fees are considered deductible for individuals and businesses. For an individual expense, taxpayers may deduct the fees as a miscellaneous itemized deduction subject to the 2% limit on Form 1040, Schedule A.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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