Feb 03, 2010
As the general public has increasingly become comfortable with online bill paying, Uncle Sam has provided easier avenues for electronic money moving. Last year, almost 80 million taxpayers filed electronically, many because they were due refunds that were processed more quickly because their tax data was sent online. Now the IRS has entered into partnerships with the private sector, including the banking industry, tax software developers and credit card processors, to make tax e-payments more appealing. Here are the ways you can electronically move your money when the time comes.
Electronic Funds Withdrawal
Individuals who file via computer, either on their own or with the help of a paid preparer, can use electronic funds withdrawal, or EFW. This basically is the reverse of direct deposit that the IRS recommends for those getting refunds. This option allows you to provide your checking account number, the type of account it is (savings or checking) and the financial institution's routing number. If you don't know which set of numerals is the routing number, check with your bank before you e-file, especially if you're planning to file and pay late on the April deadline day. At 11:50 p.m., there won't be anyone at the bank branch to answer your call for help.
In most instances, electronic funds withdrawal is free. But when you call about the routing number, it wouldn't hurt to confirm that your bank or credit union does indeed allow such transfers at no cost. One nice thing about EFW is that you can schedule when your tax payment comes out of your bank account as long as it's by the April due date. That means you can get the filing paperwork out of the way early and hold on to your cash until the last minute.
Credit Card Payments
Taxpayers can, of course, still charge it when Uncle Sam comes calling. And this year, debit cards are part of the mix. Official Payments and Link2Gov remain the two IRS-approved plastic processors. Both companies accept payments from electronic as well as paper filers, either via phone or the Internet. Payments are accepted using either American Express, Discover, MasterCard or Visa. If you want to avoid potentially costly interest charges, Link2Gov also accepts debit or check card payments as long as your card carries the NYCE, Star or Pulse logos.
Keep in mind, however, that this electronic payment method will cost you more than just your tax bill. Each company has its own fee schedule. For credit card payments it's 2.35% of your tax bill with a minimum processing fee of around $4. And if you don't pay off your original credit card in full, you'll start racking up interest charges on your account.
Link2Gov Corp. (888) 729-1040 Pay1040.com
Official Payments Corp. (800) 272-9829 Officialpayments.com
Electronic Federal Tax Payment System
You can avoid credit card vendor fees by using the federal Electronic Federal Tax Payment System, known as EFTPS. EFTPS has been established for years to directly transfer various taxes to the IRS. Now the agency is stepping up efforts to get individual taxpayers to use the system. EFTPS is a free service and is available year-round. Business and individual taxpayers can make use of EFTPS to pay taxes associated with more than two dozen tax forms, including the family of 1040 forms. To get started, you enroll and get a personal identification number and password to use the service. It's a two-step process that involves a confirmation sent through the postal service, so don't wait until the last minute if this e-payment option appeals to you. Once again, check with your bank to see if it charges an electronic transfer fee.
As with electronic funds transfers, EFTPS users can make payments 24 hours a day, seven days a week and schedule payments in advance. The online system also lets taxpayers review their last 16 months of tax-payment history and search, print or download the data by date, tax type, amount, tax form and other factors. In addition to paying an annual tax bill, filers who pay quarterly estimated taxes also can use these e-payment methods.
With one of these online methods, hopefully you can electronically file your return and pay any tax due, at least while making the payment a little less stressful.