August, 2010 Tax Tip
Paying Your Taxes by Credit Card
This month’s Tax Tip discusses a more convenient way of paying your income tax bill for your Form 1040, and of paying any tax due when you file for an automatic extension of time to file your return, as well as an easy way to make your estimated tax payments. Individuals can make these payments 24 hours a day, seven days a week, using certain types of credit cards. I have some clients who, for convenience or whatever reason, prefer to pay their taxes this way.
No matter how you file your income tax return—by mailing a paper copy or by computer—you can charge your taxes by making a phone call or by using a website. Two companies, Official Payments Corporation (1-800-2PAYTAX, officialpayments.com) and Link2Gov Corporation (1-888-PAY-1040, Pay1040.com), are authorized service providers for purposes of accepting credit card charges from both electronic and paper filers. The companies have their own fee schedules and provide both telephone and internet payment services. You may use these companies to charge taxes to an American Express, Discover Card, MasterCard, or VISA card account. Often, even partial payments may be made, although there is a limit of two payments per type of tax (or per quarter for estimated tax). If you file early, you can still wait until April to make the credit card charge.
Taxpayers also have the option of making credit card payments for the balance due on Form 1040, 1040A, or 1040EZ through tax software or through professional preparers using certain types of tax software. Some tax preparation software provides combined electronic filing and electronic payment for those who want to pay taxes with a credit card. But some tax preparation software may not allow taxpayers to make partial payments.
You can use the above credit card methods to pay any tax due on your Form 1040, 1040A, or 1040EZ. For forms in the 1040 series, credit card payment options begin in January. However, if you don't pay your full tax liability by the April 15th due date, you may be liable for interest and penalties.
You can e-file (or mail a paper return) and pay the following types of taxes by credit card over the phone or by using the Internet: current and past due Form 1040 series balance due, Form 4868 (automatic extension), Form 1040-ES (estimated tax), and Form 1040 advanced payment of a determined deficiency.
For credit card payment of any projected balance due on an automatic extension to file, service providers can be used to pay any taxes due.
Remaining due dates for 2010 for individual estimated taxes are September 15, and January 17, 2011. If you use the credit card method to pay your estimated taxes or any projected balance due on the automatic extension to file your return, you have the added advantage of not being required to file a paper Form 1040-ES or Form 4868. (Taxpayers can no longer file automatic extensions by phone.)
For any credit card payments, the authorization date of the credit card charge is considered the payment date for purposes of determining whether the payment was timely. Credit card payments cannot, generally, be cancelled.
One advantage of using the credit card method, aside from the obvious one of being able to delay paying your tax liability, is that if you participate in any credit card incentive program, such as airline mileage, you will earn points by charging your taxes. A disadvantage is the convenience fee charged by service providers. This nondeductible fee is in addition to any interest your credit card issuer will charge. Taxpayers are informed of the convenience fee amount before the payment is authorized.
Taxpayers can call the credit card issuer or the credit card payment service provider's customer service number to report problems. The customer service number is 1-877-754-4413 for Official Payments Corporation and 1-888-658-5465 for Link2Gov Corporation.
Payments to IRS under active installment agreements may also be made by credit card. Some states accept credit card payments of state taxes. The federal and state payments are not combined.
Before you use any of these programs, please feel free to call me with any questions you may have.
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