Individuals and businesses may choose to pay taxes with one of the major credit cards through service providers that have contracts with the Internal Revenue Service (IRS) and earn miles, points, rewards or money back from the credit card issuer. For taxpayers whose returns contain an unpleasant surprise, the credit card option allows some time to pull together the cash he needs to pay the tax bill.
But preparers should warn their clients that interest on credit card balances is generally higher than interest paid to the IRS on underpayment of taxes (currently 8 percent). When a taxpayer also faces penalties, paying with a credit card could make some sense, especially if the taxpayer does not carry a high credit card balance.
There are no easy solutions for the taxpayer in a cash crunch, the Buffalo News says. Mark Luscombe, principal tax analyst at CCH Inc. notes that penalties for not paying on time can be 0.5 percent of the tax due each month, but penalties for failure to file are 5 percent of the tax due each month up to 25 percent.
The client may e-file or paper file, the IRS says but credit card payments must be made through tax preparation software, by a tax professional or a card payment service provider via phone or the internet.
Payments may be made by phone, on-line or when e-filing, although not all of the e-filing providers offer this option.
Major credit cards sites provide links to the two main service providers, LINK2GOVCorporation and Official Payments Corporation. The service providers charge a processing fee, approximately 2.5 to 3 percent of the transaction. This fee is a non-deductible personal expense, the IRS says, but it is a deductible business expense.
IN the interest of protecting the taxpayer's privacy and the information in his credit card account, the IRS does not receive or store credit card numbers from the service providers, and no payment information will be disclosed for any reason other than processing the transaction authorized by the taxpayer, the Agency’s web site says.
The IRS cautions that cards should not be sent to the IRS with the return or form. Credit card account numbers should not be written on the return or form.
Information about the individual and business forms for which the IRS accepts credit card payments can be found at IRS.gov/efile. LINK2GOV’s web sites are incometaxpayment.com (for debit card payments) PAY1040.com, Pay941.com and Pay940.com for credit card payments. Official Payments’ site is Official Payments.com