After an eight-year crusade by credit card companies, the Internal Revenue Service will begin taking plastic Jan. 15.
But industry leader Visa USA is not participating in the agency's two- year pilot to accept tax payments by credit or debit card. That's because consumers, not the IRS, will pay the fees normally paid by merchants.
A 1997 law letting the IRS expand its payment options also barred the agency from paying fees. Taxpayers who want to use a credit or debit card will have to pony up an additional charge to cover processing costs.
Though fees will be set by individual card companies and the firms they hire to process the payments, the average cost will be 2.5% of the tax bill, said Steven R. Johnson, senior vice president of US Audiotex, a third-party payment processor in San Ramon, Calif.
MasterCard, Discover, and American Express are all involved in the pilot. "Is this a reasonable first step toward credit card payments? The answer is yes," said William P. Binzel, vice president of public affairs for MasterCard.
"The fee is worth the convenience of using the card," a Discover spokeswoman said.
But Visa, which controls 50% of the market, said that the service fees levied on taxpayers violate the association's policy against surcharges.
"It does not make sense to prohibit the IRS from paying for services for which all commercial enterprises and many government agencies provide compensation," Armen Khachadourian, senior vice president of Visa said in a statement.
Visa may also be concerned that others will want to pass the costs onto consumers. "If Visa accepts IRS charges, it's only a matter of time before other acceptors of credit cards cite the exception given to the IRS as a precedent for doing the same thing," said David R. Gagie, marketing director for Auriemma Consulting Group, Westbury, N.Y. "That changes the role of credit cards."
Lobbyists for credit card associations pressed Congress for eight years to let the IRS accept credit and debit cards. Bittersweet victory came in 1997 when Congress passed the Taxpayer Relief Act and let the IRS accept cards but said the agency could not pay processing fees.
Rules governing the pilot prohibit card companies from reporting data they collect on taxpayers to credit bureaus. They also are barred from using the information to cross-market other products.
The IRS said it will accept payments via credit cards from 1040 filers and from people who make estimated tax payments throughout the year. Credit card payments will be limited to $100,000.
The IRS is accepting public comments on these conditions until March 15.
The new service is being promoted to people who file returns electronically. Those taxpayers will be able to strike a key on their computer and enter their account number. People who file paper returns will be able to call a toll free number to pay by credit card.