IRS Says Yes to PIN-less Debit

  When Link2Gov Corp., which processes Internal Revenue Service tax payments, included in its 2003 contract proposal a plan to allow consumers to pay their taxes using PIN-less debit, the IRS turned down the idea quicker than a questionable tax deduction.
  The IRS, however, monitored the growth of PIN-less debit use, and it now has changed its bureaucratic mind, says Ed Braswell, Link2Gov's president. The IRS, however, declines to comment about the agency's original position on PIN-less debit.
  The IRS has selected two companies to process signature-debit and credit card transactions for payment of federal taxes, Link2Gov and Official Payments Corp. Only Link2Gov was approved to process PIN-less debit transactions this year for payment of federal taxes, according to the IRS.
  The tax-collection agency approved PIN-less debit last fall for use beginning this year for payments of 2006 income taxes because it offered a new option that would lower the convenience fee cardholders pay to Link2Gov, an IRS spokesperson says.
  "Currently, most card transactions have a convenience fee of 2.49% of the balance-due amount, but each PIN-less-debit transaction will cost the taxpayer a flat $2.95. We appreciate and encourage innovative approaches to lowering the fee to attract more users to this electronic payment option," the spokesperson says.
  Dan Schatt, senior banking analyst with Celent LLC, says for individuals who owe the government $5,000 to $10,000, the convenience fee can be a significant amount.
  For taxpayers, though, PIN-less debit can be a less-expensive alternative to using credit or signature-debit cards. For example, a $2,000 payment would cost taxpayers $49.80 when using a bankcard versus $2.95 for a PIN-less-debit transaction.
  PIN-less debit transactions are conducted online without the need to enter a PIN. EFT networks supporting PIN-less debit for certain types of billers include NYCE, Star and Pulse. The networks also support PIN-less debit transactions for utilities, education, insurance and government agencies where there is a low risk of fraud.
  To use PIN-less debit to pay taxes, cardholders must log on to Link2Gov's Web site, www.incometaxpayment.com. Once consumers who have eligible PIN-debit cards enter their the card numbers on the site, the transactions are routed over the appropriate networks.
  The IRS first began allowing consumers to pay their taxes with credit and signature-debit cards in 1999 as part of the Taxpayer Relief Act of 1997. The act, however, prohibits the IRS from paying credit card transaction fees to issuers, so Visa and MasterCard had to change their rules to allow the charging of a convenience fee for tax payments.
  But the decision did not come easy for Visa. In 2002, Visa launched a two-year pilot that allowed Official Payments and Link2Gov to charge cardholders a fee when using a Visa card to pay their taxes. At the time, Visa was worried that cardholders would react negatively to the charge.
  Visa eventually allowed the fee, but Ipsos, a New York-based market-research firm, says the charge angered taxpayers. A survey of 1,001 U.S. adults Ipsos conducted a year ago found that 78% of respondents would "definitely not" use a use a credit card the next time they owe federal taxes because of the convenience fee. Some 62% said they would pay by check, 11% said they would pay with a money order, and 7% said the IRS can debit their bank accounts.
  The survey results, however, suggest consumers will say one thing but do another. In 2005, 1.5 million taxpayers paid their federal taxes using either a credit or signature-debit card, up 54% from those who did so in 2004.
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