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Archive for Saturday, March 3, 2001

Pros, cons of using credit

Using plastic to pay Uncle Sam costs extra, tax experts say

March 3, 2001

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This marks the third year that taxpayers can plunk down plastic to pay their income taxes. Here are some questions that might be on your mind.

Q. Can I charge my tax bill on any credit card?

A. No, only MasterCard, American Express and Discover participate. Visa is still sitting out.

Q. How do I do it?

A. This year you may charge your federal tax bills over the phone or online through two vendors. The IRS notes on its Web site that you should not mail in your credit card or list your credit card number on your return.

The two vendors are:

l Official Payments Corp. (www.officialpayments.com, 800-272-9829. For payments of more than $100,000, call 877-754-4420.)

l PhoneCharge Inc. (www.about 1888alltaxx.com, 888-255-8299)

Q. Is it free?

A. No. Both vendors charge a "convenience" fee.

Q. But I don't pay any convenience fee when I shop with a credit card.

A. Actually you do, indirectly. The difference is that handling fee comes out of the merchant's pocket. But by law the government can't eat a fee. To make it worth their while, the credit vendors tack on their fee. When you look at your credit-card bill, you'll see one charge for the tax, a separate charge for the convenience fee.

Q. Do both vendors charge the same amount?

A. No. Official Payments is cheaper. It charges a flat 2.5 percent fee, which adds $25 for every $1,000 you charge. PhoneCharge charges 2.58 percent, plus a 75-cent transaction fee. That means charging $100 would translate into a 3.3 percent fee, while charging $100,000 would cost you about 2.6 percent.

Q. Is this a good way to ring up frequent-flier miles?

A. The economics of charging your taxes to accumulate air mileage is generally suspect. That's especially true if you plan to fly domestically. Bargain-hunting travelers can often find fares for less than they'd pay in convenience fees. That said, some clever frequent fliers have boasted that they've gotten bargains by upgrading on international flights.

Q. Isn't it a good way to get the IRS off my back?

A. If you're having a problem paying the IRS, you probably have other debt worries already. The main risk of charging your tax bills is that if you're undisciplined, you can spiral deeper into debt.

As counterintuitive as it sounds, "if you can't pay your taxes, you're better off to set up an installment deal" with the IRS, said Sharon Kreider, a Sunnyvale, Calif., CPA and tax lecturer. The IRS charges an effective interest rate of about 12 percent, which compares favorably with the vast majority of credit cards. Besides, she said, "You save the fee."

Q. Do I have to file a paper return?

A. The IRS and FTB would prefer that you file electronically, regardless of how you pay. The IRS is even offering an incentive of sorts: If you pay by credit card, you can have an automatic filing extension without having to send in Form 4868.

Q. May I make just a partial payment?

A. Yes, but you're responsible for the unpaid balance and face penalties and interest charges if you pay the rest off late.

Q. Will the IRS or FTB get my credit card number?

A. No, they just want your money.

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