If you're one of the unfortunate folks (or fortunate, to be more accurate, since you haven't let the IRS hold your money interest-free) who have a balance due on your federal tax return, you have a number of options with which to make your tax payment.

There are actually two ways to pay your taxes electronically. They include authorizing a withdrawal from a checking or savings account (direct debit) or using a credit card. In fact, e-payments can be used for a number of different things for tax year 2000:

• The balance due on your 2000 federal tax return.
  
  
• A projected balance of taxes due if you choose to pay with a request for an automatic extension of time to file your return.
  
  
• Estimated tax payments for tax year 2001.
  

If you pay your extension payment or your 2001 estimated tax payment via e-payment, you won't even have to file the respective forms when you make your payment (Form 4868 for an extension, Form 1040ES for estimated tax payments).

Additionally, there are many states that now accept e-payments for state tax balances due or estimated tax payments, so don't overlook your state payments if you decide to go the e-payment route.

Direct Debit

If you decide to pay your taxes by direct debit from a checking or savings account, you won't incur any fees. Not only that, you can designate a future date for the actual withdrawal to occur. But in order to use a direct debit, you must e-file, either by a computer or by phone. It's not available if you decide to file using a normal paper return.

Since you can direct the time when you authorize the debit from your account, you can file early, but schedule the withdrawal as late as April 15th. For returns filed after April 15th, the payment will be effective on the filing date. But remember that if April 15th falls on a Saturday, Sunday, or legal holiday, you've got until the next business day to file your return and/or pay your taxes. So for your 2000 tax returns, your actual filing date is April 16, 2001. And for some of our friends in the Northeast, who use the Andover filing center, you'll have until April 17th, since April 16th is "Patriot's Day." Woo Hoo!

Credit Cards

If you decide that the direct debit isn't your cup of tea, you can choose to make your payment by credit card. Using a credit card is much more flexible, since a credit card can be used for payment even if you decide not to e-file.

But be aware: There is a "convenience" fee for using your credit card, and this fee is set by the private sector processors and not the IRS. These fees can be pretty hefty, so make sure that you think twice before using your credit card for payment. Your tax payment and the convenience fee will be listed separately on your credit card statement.

The IRS has authorized two companies to accept credit card payments from both e-filers and paper filers. They are the Official Payments Corporation and Phone Charge, Inc.

Official Payments Corporation: At Official Payments, you can pay the IRS, 16 states, and over 650 local governments. You can use an American Express card, Discover card, or MasterCard to pay your taxes by phone or via the Internet. Dial 1-800-2PAY-TAX (1-800-272-9829) or point your browser to: www.officialpayments.com.

Phone Charge Inc. (PCI): PCI lets you pay your individual income taxes over the phone or Internet using an American Express card, Discover card or MasterCard. Dial 1-888-ALLTAXX (1-888-255-8299) or visit the website.

Each company has its own fee schedule, and each offers both phone and Internet payment services. You can use either of these services to charge taxes to your American Express, Discover, or MasterCard account (but not Visa).

Again, there's no reason to not file early, and then wait until mid-April to make your credit card payment. So the credit card option is very handy for those folks who are still paper filing.

One last word about using credit cards to make your tax payment: You might think that if you have an affinity or mileage card, you'll earn credits for the payments that you make. And you may be right, but you also may be wrong. Check with your bank before you take the credit card payment plunge in order to determine if your payment will be treated as a purchase (subject to mileage or affinity points) or as a cash advance (not available for mileage or affinity points).

Now... if Uncle Sammy could just make computing your taxes as easy as paying them!

Related Links:
Paying Taxes Electronically - 101 (Guest Article)
I Can't Pay, Now What?

If you like the way Roy Lewis simplifies confusing tax issues, check out his just-published book, The Motley Fool's Investment Tax Guide 2000: Smart Tax Strategies for Investors. This handy 360+ page guide covers just about every tax aspect of a typical Fool's life: investing, marriage, children, education, homes, home offices, retirement accounts, medical expenses, and much more.)

March 02, 2001

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