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Charge it! - payment of federal taxes with credit cards

Beginning next year, taxpayers will be able to charge their taxes to a major credit card.

As part of its plan to increase electronic filing and payment of taxes (the goal is to receive 80% of all returns by 2007), the IRS entered into agreements with private companies to provide the new service.

"A lot of people will want to pay their taxes with credit cards, and that might increase compliance," said Jamie L. Ward, a CPA with Denman & Co., LLP, Des Moines, Iowa, and a member of the Institute's 1997-98 tax technology committee.

"The IRS will collect more, and that will work in their favor," she said.

Under the new agreement, US Audiotex of San Ramon, California, will process tax credit-card payments by phone. Taxpayers using US Audiotex and filing electronically (by home computer, by Telefile or through a preparer) will be able to charge their taxes with a toll-free phone call.

Taxpayers filing their taxes using Intuit's Turbo Tax or MacInTax software will be able to charge their taxes through NOVUS Services, Inc., of Riverwoods, Illinois. Taxpayers will be able to use any credit card issued by NOVUS to make the charges.

The IRS will not charge taxpayers for the credit card service. However, taxpayers will be assessed a convenience fee by the credit card service providers based on the tax amount charged.

The fees associated with electronic filing may deter some taxpayers, Ward said. "Our firm doesn't do a lot of electronic filing because most of our returns are complex ones."

"The people that do file electronically, however, now pay a fee to do so. They would have to pay an extra fee to use their credit card." The filing fee and the credit card fee together could easily total as much as $100, she said.

"Business-oriented CPA firms are not going to get excited about anything that is on the table now," said C. Eugene Prescott, former chairman of the AICPA's tax technology committee, concerning the new electronic filing services.

Prescott said the services would be an improvement for individuals with simple filings; however, businesses and individuals with more complex filings have little incentive to make the switch to filing electronically.

Required supporting documentation and the need to file some schedules on paper remain a barrier.

Michael E. Mares, immediate past chairman of the AICPA tax executive committee, addressed the difficulties that keep CPAs from embracing electronic tax return filing for most of their clients when he testified before Congress this summer:

* Not all forms can be filed electronically.

* White paper schedules, disclosures and elections cannot be attached electronically.

* The required signature, Form 8453 (Jurat form), disrupts the normal processing of the tax returns in a CPA office.

* The procedures for registration and the annual registration cutoff in early December are less desirable than a rolling acceptance date.

* The registration is cumbersome for firms with multiple offices.

"It boils down to this," Prescott said. "As long as a paper version is necessary, doing both a paper and an electronic return is worse than making multiple copies of a paper return."

Take-Home Pay

The average manufacturing employee costs an employer $14.89 per hour. However, he or she takes home only 72% of that amount. The rest (28%) goes to Uncle Sam.

Employees cost to employer               $14.89

Employer taxes

Social Security/Medicare payroll tax       1.00
Worker's compensation                       .67
State unemployment insurance tax            .11
Federal unemployment insurance tax          .03

Total employer taxes                      $1.81

Employee gross earnings                  $13.08

Employee taxes

Social Security/Medicare payroll tax       1.00
Federal income tax                          .98
State income tax                            .31

Total employee taxes                      $2.29

Government share                          $4.10

Employee take-home pay                   $10.79

Source: CATO Institute, The Hidden Burden of Taxation, Washington, D.C.

IRS Teams Up With Companies for E-Filing

The IRS has entered into several agreements with private companies to promote electronic filing:

* The IRS contracted with VeriSign Inc., of Linthicum, Maryland, to conduct a test with IRS employees of a technology that will provide electronic signatures.

* The IRS will conduct an electronic filing test using personal identification numbers (PINs) for taxpayers through Intuit (Mountain View, California), H&R Block (Kansas City, Missouri) and the National Association of Enrolled Agents (Gaithersburg, Maryland).

* The National Association of Enrolled Agents (NAEA) will test a program designed to make it easier to become electronic return originators.

* The IRS and Tax Refund Express (TRE), of Houston, Texas, will use letter solicitations to promote electronic filing to credit union members.

COPYRIGHT 1998 American Institute of CPA's
COPYRIGHT 2000 Gale Group