In the past, really the only way to pay your tax was to do it via paper check. But over the years, there are so many more electronic methods that became available, but most of those required a fee, so a lot of people didn’t do it. Well, now the IRS and many states have found ways to be able to let you pay your tax electronically without any fees, which is really nice.
So what is the advantage of paying your taxes electronically?
Well, there are many I can think of, but convenience, I think, is the number-one factor. You know, not needing to write that check, put it in an envelope, stamp the envelope, mail it and hopefully they get it. You know, maybe even sending it “Return Receipt Requested” (which will cost extra), just to make sure that they got it. The electronic version just allows you to get that verification number—that confirmation number—to make sure that you know that they got it right away.
Set Date and Amount
You can also set the date and the amount when you’re going to make these payments so that you don’t get penalty notices. We’ve had people that have gotten penalty notices because they sent the check out on time, but through the mail it just took a while to get there.
Set Up Multiple Payments
And you can set up multiple payments at one time that will come out on different days. So this is really good for people that do estimated tax payments, because you can almost set up all four of them and not have to worry about forgetting the second, third or fourth one.
So … I heard once that the IRS has a service center where they have to go through 10 million pieces of mail—is that true?
You heard right! So during this whole COVID-19 shutdown, only essential workers were allowed at the IRS offices. So at this time, the opening of mail was delayed, so at one point I did hear the same thing that you heard: Ten million pieces were just waiting to be opened, and some of those were tax payments! I know at our office we had clients calling that said that they had mailed checks months ago, and those checks still weren’t cashed, and so of course the clients were getting worried about it. Now, they were eventually cashed, but paying electronically—that would solve that whole problem, too.
I just can’t imagine having 10 million unopened pieces of mail. I can’t even fathom how they go through that.
If you’re at a service center—right, that’s what I was thinking. How do you organize that? How do you figure out, “Ok, I have to go through this mail first because it came in first”? I had heard something about that it was just kind of lined up sitting on trucks and just waiting. But I don’t know how you could hire enough people at the IRS to catch up on 10 million pieces of mail.
So what payment options are available when we’re talking about electronic payments?
So forever and a day, businesses have had what’s called EFTPS® (Electronic Federal Tax Payment System). This is a system where you would need to preregister, but once you’re set up you can make as many payments as you want, including future payments. And the other advantage is, is that payments can be changed later.
Like I said, this is the system that’s been around for businesses forever, but individuals can also use it. It’s a little more complicated because there is that pre-sign-up process, but it is free and it works.
So is there an easier way (because people like to do things easy)?
Yes, there is. On the IRS website (I think even starting this year) you can actually go right there and do what’s called Direct Pay and have an amount of tax taken right out of your bank account. Now, it’s not as convenient as the EFTPS®, because they’ve already verified your signatures and verified your information. When you go in and make this one-time payment, they’re going to want to verify that it’s you in order to do that. But for this case, there’s no fee for this service, either, so it’s a little bit easier.
What about credit cards or debit cards; can you use those electronically for paying taxes?
That’s been kind of what a lot of people have used in the past and you can still do that, and that can also be done just directly from the IRS website. If you use your debit card, I think the fee is like between $2 and $4, so it’s pretty reasonable (not the worst). If you use your credit card, I think the fee is like around two percent of the tax paid. So if you’re using the credit card to get points, you’re probably going to eat up those points in fees, so it probably doesn’t make sense to do it.
So last question: What about those people who are worried about giving the IRS their bank account information …?
You know what … to be perfectly honest, I think they already have it. If you just look at this economic impact payment of the $1,200 that we had because of the stimulus plans, the IRS needed your bank account number in order to deposit that into your account, so they probably already have it for that reason. Let’s say you got a refund on last year’s return, or the year before’s return. They probably have it because of that refund being direct deposited. So for those people that are worried, they probably already have it.
Now, I personally use the electronic payment process for both federal and Wisconsin, and it’s always worked out really well, so I have no issues in using it at all.