Credit or debit card convenience fees charged for paying federal individual income taxes electronically are deductible for some taxpayers who itemize, the Internal Revenue Service (IRS) has announced.
Federal law bars the IRS from paying any fees associated with these credit or debit transactions. Card processors normally charge taxpayers for convenience fees when they use their credit or debit card to pay taxes. Fees vary but average about 2.5% of the tax payment.
In reassessing a previous position, the IRS has decided that the convenience fees associated with the payment of federal tax, including payment of estimated tax, can be included as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceeded 2% of the taxpayer’s adjusted gross income can be deducted.
The IRS has warned that not everyone who pays the fees will be able to deduct them. Taxpayers first must be eligible to file a Form 1040 Schedule A to itemize their expenses. Further to this, taxpayers must have enough miscellaneous expenses to exceed the 2% threshold. These expenses include items such as tax preparation costs, job search expenses and unreimbursed employee expenses.
For details on claiming miscellaneous deductions and figuring the 2% limit, the IRS has urged taxpayers to read Publication 529. The fees are deductible in the tax year they occur. For example, fees charged to payments made during 2015 can be claimed on the 2015 return filed next year.
Most individuals still pay their federal tax obligations by check, but last year more than 4 million taxpayers electronically paid their taxes.
The IRS has emphasized that there are free options available, explaining that taxpayers can have funds electronically withdrawn from their bank accounts or use the Electronic Federal Tax Payment System (EFTPS). Payments can be made either on-line or by phone, 24 hours a day, 7 days a week.