I remember my very first bank account. At a young age before I was driving, I somehow managed to obtain a job as a child disc jockey on a local kids radio program. I worked 2 hours a week for $5 per hour and my job was to record a series of trivia snippets that were later aired on the radio. After my dad got tired of toting me down to the bank every month to cash a $40 check, he helped me open a bank account. I handed the teller my money, she put it in a drawer and handed me back a checkbook. In order to get money out, I had to go into the bank and make a withdrawal.
My how times have changed. Now, 15 years later, 99% of my expenses are done automatically over the internet and I probably couldn't tell you where my checkbook was without looking for a minute. What's more is that this is common for a fair amount of the population now. So if you're a taxpayer and you owe taxes and you're having a hard time finding your checkbook, what are your options?
With the increasing popularity of electronic filing of tax returns, it seems that the IRS has also become open to the idea of receiving payments electronically as well. Short of mailing in a paper check to pay taxes, the IRS also has other options available to taxpayers.
Taxpayers can use one of a number of approved payment processors to pay their taxes with a debit or credit card. The catch is that there are fees associated with the transaction that vary depending on which processor you choose. For example, Pay1040.com will process your transaction for a flat fee of $2.79 if you use a debit card and 2.35% of the amount if you use a credit card. This is a good option for taxpayers that are willing to pay the fee for the convenience factor and want to earn a couple of extra points on their credit card.
Electronic Federal Tax Payment System (EFTPS)
EFTPS provides a taxpayer with online access to a tax payment account. The taxpayer can attach their EFTPS to a bank account, view previous payments, and schedule future payments. The EFTPS system is free and available to all types of taxpayers. In fact, some businesses are required to use EFTPS. Once a taxpayer signs up for EFTPS, they will receive a confirmation with a PIN in the mail, which they will use when they login. EFTPS is a good option for all businesses, and individuals that make large payments or estimated tax payments. The EFTPS system allows you to schedule future payments, reducing the risk that a taxpayer will forget to make their quarterly tax payments.
Direct Pay is a new option offered by the IRS. Instead of using a card, Direct Pay allows a taxpayer to draft their taxes directly out of their bank account. The process requires the taxpayer to verify their identity and enter bank information, and it has no cost to the taxpayer. This is a good option for individual taxpayers that owe any amount and do not want to go through the EFTPS process. Currently Direct Pay is only available to individual taxpayers, not businesses.
Of course, taxpayers can always use the conventional method to pay their taxes by writing a check.