If credit cards have long made it easier to pay for the fun things in life, it should come as no surprise that cards are being used to pay for the unpleasant items too.
The Internal Revenue Service and some state governments have been promoting the electronic filing of tax forms for several years now. That has several bank card issuers, MasterCard International and Discover Financial Services encouraging cardholders to use their credit card to pay taxes.
While electronic filing is becoming more popular, paying taxes by card is growing haphazardly, with a decline last year in the total amount paid, according to the IRS. MasterCard reported a 24% drop in the gross dollar volume of federal tax payments from 2001 to 2002.
Last year, 313,400 filers paid $781 million in federal taxes with a card, according to the IRS. The number of filers grew 10% last year but the dollar value dropped from the $891 million paid in 2001. An IRS spokesperson says that is probably because more people are paying with cards but for smaller amounts.
However, MasterCard claims that gross dollar volume of tax payments made with its card at the state and local level grew 54% from 2001 to 2002. Currently 26 states and the District of Columbia accept credit card tax payments.
By Congressional directive the IRS can't charge a fee for accepting cards so the agency has contracted two firms- Official Payments Corp. and Link2Gov Corp.-to process card payments. Link2Gov charges the cardholder 2.49% of the tax payment as a convenience, or management, fee. Official Payments charges 2.5%. The minimum fee is $1.
About 30 million taxpayers will have a balance due this year and about 375,000 will pay with a credit card, says Terry Lutes, IRS director of electronic tax administration. The small number of payments by card is probably due to the management fee, Lutes says. The average charge on a federal tax bill today is $2,000 so a fee of 2.5% would add $50 to the taxpayer's bill.
Last year, Visa U.S.A joined MasterCard for the first time in allowing its cards to be used for federal tax payments. Discover has a five-year-old relationship with Intuit, creator of TurboTax for the Web software. Link2Gov and Official Payments also accept the American Express card.
Early this year, MasterCard distributed 21 million statement inserts to its member financial institutions to educate cardholders about using their cards to pay their taxes.
Some card issuers are offering incentives with hopes of grabbing taxpayer interest. Holders of the American Express' Delta Air Lines SkyMiles card can earn double SkyMiles when using the card to pay their federal income taxes. AmEx cardholders enrolled in the Membership Rewards program can earn a point for every dollar spent paying taxes.
Bank One Corp. recently began offering double miles on its United Airlines Mileage Plus Visa for federal and state tax payments. And Discover's deal with TurboTax gives consumers an immediate 15% discount on the software if they use it to file their taxes.
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