The Internal Revenue Service is sounding a bit like a carnival barker: "Filing your taxes was never easier," its Web site says. "IRS e-file is used by millions of satisfied taxpayers each year to provide a more convenient method of filing their taxes."
Behind the hucksterish come-on is a confluence of events that have indeed made it simpler than ever to file federal (and some state) income tax returns over the Internet, and to pay them by credit or debit card. The IRS estimates that 42 million Americans will file electronically this year (up from 35 million last year), saving Sam a lot of money in paperwork.
There are several good reasons that banks should care about this trend and do their part to encourage it. Among the obvious and direct benefits is that when people charge their tax payments to bank cards, banks have the chance to earn interest and fee income on those payments. Banks also eliminate what would otherwise have been paper check transactions, and put themselves at the center of a steady stream of business. Once someone starts putting tax bills on a credit or debit card, that person will probably make a habit of it.
The government's exhortation to start filing taxes electronically will, in the long run, accustom taxpayers to conducting their financial business online. If people work with accountants who favor electronic filing, they may also start dabbling in online banking, account aggregation, and other online activities that banks want to encourage. After all, with the IRS sending the message that online tax filing is safe and private, people who may have doubted the security of sending sensitive information online may start to feel more comfortable.
Technological and legal changes mean that, for the first time this year, citizens can file completely paperless tax returns. Thanks to the E-Sign law, which took effect last fall, the IRS added a feature called the "Self-Select PIN," in which people who file returns electronically can pick a personal identification number and use it as the electronic signature on their electronically filed tax return, instead of the pen-and-ink signature that has been needed until now.
In other changes this year, the IRS says it has improved its telephone service (which lets people file taxes by telephone, among other things), and has added a box people can check that authorizes the agency to call the person's tax preparer and discuss processing problems by telephone.
The IRS has also added to its Web site 23 new forms that people can file electronically, and says that last year, people downloaded more than 150 million forms and publications from www.irs.gov. Thanks to the changes, "almost all taxpayers can now use e-file," according to the IRS.
These improvements complement changes made a few years ago that permit consumers to make federal tax payments by credit card. MasterCard International, American Express Co., and the Discover unit of Morgan Stanley Dean Witter & Co. participate; Visa U.S.A. does not, because of the requirement that the consumer pay the customary merchant fee as a "convenience fee." Debit card users do not pay such a fee, but credit card users pay about 2.5%; according to one tax preparation Web site, the fee is $3 for up to $100, and $68 for $2,000 to $2,699.
The government has chosen several "partner" companies that help facilitate electronic tax filings and credit card payments, including H&R Block Inc., Intuit Inc. (which makes software that helps people file electronically), and an enterprising accounting firm, Gilman + Ciocia Inc., which runs a Web site called e1040.com. The IRS Web site even hawks the fact that certain people who pay tax bills with their Discover cards and Quicken TurboTax can earn cash-back bonus awards - a plug that could give banks some ideas about how they could try to get in on the agency's promotional act.
Banks may find that the government's growing emphasis on conducting business online does more than any single company's marketing campaign ever could in terms of getting people to migrate there. Keeping abreast of what Uncle Sam is doing will help nimble banks find valuable tie-ins that can increase customer loyalty and promote reliance on electronic banking.
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