Why It's More Expensive to Pay Taxes by a Credit Card

Photograph by Daniel Acker/Bloomberg

The grocery store doesn’t add a surcharge when shoppers pay with credit or debit. Why do taxpayers have to pay one when they break out the plastic?

Despite a proliferation of tax-prep offerings and ways to file, there is still no way to avoid processing fees of 1.88 percent to 2.35 percent on credit cards, or flat-fees of $2.99 to $3.95 per filing on debit cards.

That processing fee is actually always there, whether you’re charging laundry detergent or paying back taxes. With a retail transaction, the merchant covers that cost—or at least, hides it in its markup. The government doesn’t. “The IRS isn’t worried about you going to the store down the street,” says Greg McBride, a senior analyst at Bankrate.com.

IRS spokesman Dean Patterson confirmed Friday that there is no way around the card-processing fee, other than to pay by check. (Remember checks?) When asked why the government didn’t cover transaction fees from tax revenue—as a merchant does—he says, “I suspect it’s statutory that we can’t.”

Arguably, they shouldn’t. If U.S. residents paid all their non-withheld income and estate taxes by credit card last year, the fees would have totaled between $6.6 billion and $8.2 billion—or more than half the IRS’s proposed 2013 budget.

    Before it's here, it's on the Bloomberg Terminal.