Paying the IRS

While nobody likes to pay the IRS, it is just one of those unpleasant and inevitable experiences in life that most Americans must deal with.  There are several ways to send funds to the IRS other than by the traditional method of sending a check and each has it’s benefits and disadvantages.

1.  EFTPS.  The Electronic Federal Tax Payment System (EFTPS) is an online, electronic payment system that most taxpayers to pay via the Internet or over the phone. Tax payments can be made up to 120 days in advance for businesses and 365 days in advance for individuals, including estimated tax payments.  In most cases, you can set up the payment to withdraw from a bank account or, in the case of some business taxpayers, a bank funds transfer can be established.  EFTPS is available for most forms of tax payment but it is important that you properly designate the payment to the correct tax form and year.  Click here for more information about EFTPS.

2.  ELECTRONIC FUNDS WITHDRAWAL.  You can still make electronic funds transfers without EFTPS in some cases if you e-file your tax return and use software (e.g., TurboTax) that supports electronic payments.  The IRS does not charge a fee for payments by electronic funds withdrawal, but your financial may charge for electronic withdrawal so check with your bank before using electronic funds transfer.

3.  CREDIT OR DEBIT CARD PAYMENTS.  You can sometimes pay by credit card but the IRS does not take credit cards directly.  In oder to pay by credit card, you must use one of the approved credit card processing companies.  Be careful that you use only an approved company and also beware of the fees that these companies charge.  The IRS website has information about the available options.  Note that a business cannot use a credit card to make payroll tax deposits and there are some other limitations so check to make sure that the type of tax you plan to pay is allowed for credit cards.

Check with your advisor or with the IRS before paying by one of these electronic methods to make sure that you can pay on time and avoid penalties and interest.

For a detailed discussion of the issues in this area, see “An Overview of IRS Electronic Payment Options,” by Kristy Hurtt, CPA, in the December 2009 issue of The Tax Adviser.