How to Avoid Tax Commissions
If you are one of the 20% of Americans who expect to be in tax debt after filing their tax return this year, you may be wondering how best to pay it. It turns out there are several different ways to settle the balance with the IRS, and some are better and cheaper than others.
IRS direct transfer options are always free
If you don’t want to pay for the privilege of sending public money, the IRS offers its own electronic funds transfer service, either through the Direct Pay portal or through the IRS2Go mobile app . Both allow you to make payments directly from your checking or savings account. However, this service has limited scheduling options and you have to fill in your personal information every time you use it, which is a problem. But it works well if you need to make a one-time payment.
Another option managed by the Treasury is the Electronic Federal Payment System ( EFTPS ) portal , which has more scheduling options than direct payment. This tool is more commonly used by business owners for regular, scheduled payments and allows large payments of up to $ 10 million.
None of the services charge a processing fee.
Check or money order
You can send a check or money order payable to the U.S. Treasury, but make sure the check is mailed with a Form 1040-V showing the amount you owe, and make sure you mail it to the correct address as they vary depending on region. You can find the correct address here , and more information on using this payment method here . This option is free for a regular check, but you will likely pay a small fee to receive a money order.
Credit or debit card
The IRS partners with third-party companies that will process payments using your credit or debit card (you can use PayUSAtax, Pay1040, or ACI Payments, instructions for which can be found here ). However, with this option, commissions are inevitable. Debit card transactions will cost you a couple of bucks per transaction, and credit card transactions can cost even more, as fees are based on a percentage of your total payment:
- PayUSAtax: 1.96%,
- Pay1040: 1.99%
- ACI payments: 1.99%
If you file your tax return using tax preparation software, you will also be charged a fee if you pay by credit card, and those fees will be higher – closer to 2.5%.
Even if you use a cheaper IRS partner like ACI Payments, you will still pay nearly $ 40 to process a $ 2,000 payment. For this reason, you should avoid using your credit card unless it is a matter of necessity, or if you are using a transaction to qualify for a credit card welcome bonus or bonus points (this is not recommended if you cannot redeem the card right away).
Direct debit
The IRS will accept direct debit payments from your checking account, but only if you filed your tax return electronically using tax preparation software. However, you should be careful with this option as tax software vendors may surprise you with higher fees . The IRS advises you to “check with your financial institution for any fees it may charge” as part of their tax filing service.
Same day bank transfer
A lesser known method of payment is asking your bank to arrange a wire transfer to the IRS. It is a little inconvenient, however, requiring you to fill out an IRS form – plus fees can vary greatly depending on the financial institution. At the same time, there are no restrictions on wire transfers, which makes it an ideal option for processing large payments.
Cash payment in person
If you would like to pay in person, you can pay in cash with a participating retail partner listed here . The downside is that they will likely charge a few dollars in commission and can only accept payments up to $ 1,000 per transaction.
You can also pay at your local IRS office , but many establishments are closed due to the pandemic, so make sure your local office is open and that you make an appointment in advance.