Giving Credit Where Credit's Due: Charging Your '99 Taxes

As if you didn't use your credit cards enough this holiday season.

On Jan. 14, you'll have a few reasons to start charging again. That's the first day you can put your 1999 tax bill on plastic. (Early birds take note: It's also the first day you can electronically file your 1999 return.)

The Internal Revenue Service initiated credit-card tax payments in 1999, and more than 53,000 taxpayers tried it, charging more than $181 million in taxes.

In the new year, you'll be able to charge even more tax obligations, including your estimated payments for the 2000 tax year (but not your estimated payment for the fourth quarter of '99 that's due Jan. 15), and any tax payment that must accompany an application for a filing extension.

If you do charge these particular items, you'll be rewarded with a small paperwork saving: You won't have to file the forms that usually accompany these payments: Form 1040-ES - Estimated Tax For Individuals and Form 4868 - Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

It's all part of the IRS' push to make 80% of the tax-filing process paperless by 2007.

As a refresher, you have two charge-it options: You can dial 888-2PAY-TAX and use American Express, Discover or MasterCard. Or you can file electronically through Intuit's TurboTax or MacInTax software programs or Web sites using your Discover card.

Keep in mind, though, that you'll pay a "convenience" fee for using a credit card. The fee is split between Official Payments(OPAY) of San Ramon, Calif., the company running the payment system for the IRS, and the credit card company. The IRS gets nothing but your tax payment.

In 2000, the fee will average 3% to 4% of your payment, up from about 2% to 3% in 1999. Official Payments blames the rise on increased transaction costs with credit card companies.

Generally, the more you charge, the lower the fee. You'll pay $6, or 6%, on a $100 tax bill. That fee falls to a low of 2.5% on amounts above $99,999. (See Official Payments' Web site for the complete payment scale.)

Of course, if you don't immediately pay off your charge-card debt, you'll pay your usual carrying charges on the balance.

Although the Official Payments site indicates that $99,999 is the maximum you can charge, just call your credit card company if you want to charge more. If the company approves you, Official Payments will accept the charge.

For the 1998 tax year, several taxpayers charged million-dollar bills, according to Official Payments, and credit card companies reported that they honored their bonus-points programs on these payments.

Some other quirky rules to keep in mind when using your plastic:

Someone else can put your tax bill on his or her credit card. But a note to the charitable: If you foot someone's tax bill, that payment is considered a gift for tax purposes.

Unless you're filing with a tax software program like TurboTax or Kiplinger TaxCut, if this is the first year that you're filing a tax return, you cannot pay by phone.

If you use tax-preparation software, you can't make partial payments on your credit card. But you can if you're using the 888-2PAY-TAX phone line. In fact, if you're charging by phone, you can spread out the tax payments over several months, as long as the entire bill is paid by April 17. (Since April 15 falls on a Saturday, the deadline is delayed until the following Monday night.)

If you're not out to score frequent-flier miles from your credit card company, you always have the option of debiting your checking account to pay your tax bill. Most tax-preparation software packages include this option. You'll just need your bank account number and your bank's routing transit number to get that going.

On the Road to Paperless Filing

If you filed a computer-generated tax return last year, you may have gotten a postcard from the IRS with some numbers on it.

Do yourself a favor: Immediately put it in your 1999 tax file. (You do have one, don't you?) Or tape it to your computer monitor or put it on the fridge next to your kid's homework. Just don't lose it. The IRS will not send you a new one.

It's your tax-return "signature," part of a pilot program involving 11 million taxpayers. The number on the postcard is your electronic customer number. If you have a number, you can have a completely paperless tax-filing experience this year. Simply enter it on your electronic Form 1040. (If you filed a joint return last year, you card should have two numbers on it, both of which must go on your electronic tax form.)

Again, this is part of the IRS' effort to make e-filing more popular. The goal is to get 33.6 million taxpayers to e-file in 2000, up from 29.3 million in 1999.

Previously, even if you filed electronically, you had to mail several forms separately to the IRS, including Form 8453-OL -- U.S. Individual Income Tax Declaration For On-line Services Electronic Filing, plus your W-2s, 1099-Rs, etc.

If you have an electronic customer number, or ECN, you'll save the stamps. But if you have a complicated return that requires you to attach forms other than the common ones -- such as an additional schedule for your numerous trades -- you can't e-file.

Even if you don't have an ECN, you no are longer required to mail your W-2s and 1099s to the IRS if you're filing electronically. But you still must sign and mail the signature form, Form 8453-OL -- at least for another year, anyway.

Keep an eye on the IRS Web site for its list of tax-preparation software and Web sites that have the Service's seal of approval. That should be up the first week of January.

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