Many of you have read that it is now possible to pay your taxes by credit card. As you may know, the 1997 Tax Act allowed the IRS to accept payment for federal taxes by any "commercially acceptable means" it deems appropriate under the conditions provided in the regulations.

Late in 1998, the IRS issued temporary regulations for paying taxes by credit or debit card. Those regulations indicated that credit cards could be used for payments made on or after January 1, 1999. However, there were just a few small problems. The IRS didn't announce which cards it would accept. The IRS didn't tell us how to make the credit card payments. And finally, the IRS didn't disclose the types of tax liabilities allowed to be paid via credit or debit card.

In effect, Uncle Sammy said, "You can pay your taxes by credit card, but we don't know exactly how you can do it, where you can do it, what taxes you can pay, or what cards you can use. But you can rest easy knowing that you can do it."

But that has all been resolved now. The IRS recently announced that, under a new pilot program, you may pay your federal income taxes via credit card in one of two ways:

1. By phone. Once you determine the amount you owe, you can call 1-888-2PAY-TAX toll free and pay your 1998 income taxes with a MasterCard, a Discover Card, or an American Express card.

2. By computer. E-filers (those filing tax returns electronically) who use Intuit (TurboTax) tax preparation software may, under an arrangement between Intuit and Discover Card, charge their balance due to a Discover Card brand credit card. The payment information will be part of the electronic file sent to the IRS should you decide to use this feature.

Under either method, private sector companies process the credit card transactions and report payment amounts to the IRS. But private sector companies do not provide the IRS with your credit card numbers (thankfully).

You should also know that under either method, you will be required to pay any convenience fee (generally, the percentage fee that the merchant is required to pay on your purchase). And you should know that the IRS is not involved in setting or collecting these convenience fees. In fact, the IRS is prohibited from paying fees to credit card companies. This was one of the hurdles that had to be overcome before the IRS could begin to accept credit card payments.

Also, understand that the pay-by-phone system isn't linked to how you file. Therefore, even if you file a normal paper tax return, you can still use the pay-by-phone system. While it may be too late for many taxpayers to use this program for the April 15 tax payment deadline, there may still be some of you out there who have filed your return, but have not yet paid your taxes. In addition, there may be people out there who filed extensions and may find they have tax balances due when they actually prepare their tax returns.

And, while not yet up and running, it is quite possible that you'll be able to pay your 1999 estimated taxes using the pay-by-phone system in the near future. We'll just have to watch and wait.

But what about the "freebies" -- the airline miles you receive with many cards -- and the cash-back rebates that you get from Discover? Will they still apply? I'm not so sure. It is my understanding that the credit card companies will treat these tax payments as "cash advances" and will not attach any of your associated freebies to such a cash advance. So before you leap, you need to contact your credit card company and see how they specifically will handle the payment, and if you'll receive your airline miles and/or cash rebates on the transaction.

One final note: The pay-by-phone system can also be used by California and New Jersey taxpayers to pay their 1998 state tax balances due.

Now, if Uncle Sammy could only make computing your tax balance due as easy as paying it!!!

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- Article 04/30/99

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