Paying Taxes by Credit Card Remains Stagnant

The study revealed for the second year that while 62% of American adults are aware that the Internal Revenue Service accepts credit cards, a paltry 1% plan to use a credit card to pay incremental Federal income taxes for 2004. Depending on the service provider, a credit card convenience fee of anywhere from 2.25% to 3% is charged to the taxpayer when paying federal taxes by credit card. The Taxpayer Relief Act of 1997 authorized the Treasury to accept credit card payments for federal taxes but prohibits the IRS from paying the standard credit card transaction fees merchants usually pay credit card companies to process their transactions. The convenience fee acts as a necessary revenue stream and is split between the service provider and the credit card company in exchange for the time it takes them to handle and process these transactions. According to the study, Americans are extremely resistant to paying the convenience fees. Three out of four (75%) say they definitely will not use a credit card the next time they owe incremental Federal income taxes. Instead, they will resort to the usual personal check (70%), money order (3%) or direct debit from a bank account (15%). The study reveals that if the service were free, 21% of those open to the concept would use it, down from 34% last year. This sends the signal that the convenience and loyalty benefits of using a credit card are appealing, just not for a premium. This year, 16% of Americans who owe or plan to owe federal income taxes expect to pony up an average of $1,200 to Uncle Sam on April 15-an attractive sum to credit card companies. Market exists, but fee issue must be addressed For the second year running, the Ipsos-Insight survey revealed that awareness of credit card payments for federal income tax purposes remained static while the percentage of potential users declined. This shows that there is a potential market for income tax payments with credit cards, but the issue of convenience fees must be addressed. Methodology Data were gathered using the Ipsos U.S. Express omnibus survey from April 1-3, 2005. Interviews were conducted via telephone among a nationally representative U.S. sample of 1,001 adults aged 18 and older. The margin of error is +/- 3.1%.