E-Filing Can Mean E-Paying

The IRS now allows electronic filers to pay automatically via credit or debit card, but the privilege will cost a bit

Haven't filed your federal income taxes yet? Statistics say you're most likely to be over 40, male, have a six-figure income, and generally need seven hours or more to complete your tax return. Those are the results of a survey by polling firm SWR Worldwide, based in Washington, D.C., for software maker Adobe Systems. (Adobe is interested in deadline-filers and late filers because they're more likely to use tax-preparation software and file electronically than those who've done their math weeks in advance.)

E-filers who have a balance due can pay electronically with a debit or credit card, now that these options are included on most current tax-preparation software. Taxpayers will need to know not only their debit- or credit-account number but their financial institution's routing-transit number. They also will need to confirm with their financial institution that electronic debits are allowed from the account.


  Electronic payments must be made at the time the tax return is filed because the IRS will not accept them later. However, the taxpayer gets to designate the date on which the funds will be withdrawn from his account -- specifying a date after Apr. 16 means interest and, possibly, late penalties, will apply. Interest and penalties also apply if the financial institution can't process the payment because of insufficient funds.

Those paying by credit card can use American Express, Discover, or MasterCard. They'll also pay extra fees because they have to go through one of two companies authorized by the IRS to process credit-card charges for federal taxes. They are Official Payments Corp. (www.offficialpayments.com) and PhoneCharge Inc. (www.About1888alltaxx.com). These processors are necessary intermediaries for getting authorization for credit-card charges, and they assess a "convenience fee" of 2% to 2.5%, based on the amount of tax owed. The reason: The Taxpayer Relief Act of 1997 allowed credit-card payments but prohibits the IRS from paying a fee to credit-card companies for such transactions.

Some states, but not all, accept payment by debit or credit card, as well. Federal tax payments show up on credit-card bills as "United States Treasury Tax Payment." In addition, the processors provide electronic or paper receipts.

Do you have a small-business tax question? Tax professionals will answer your questions in the Tax Adviser column, appearing here Wednesdays. E-mail Taxadviser@businessweek.com. We will not print your name, address or phone number, but please provide this information.