Tax WeekWith tax-filing season upon us, Two Cents is donning the green eyeshades and focusing on stories which will help you navigate tax preparation and make the most out of your return.If you’re one of the 20% of Americans expecting to owe the IRS money after you file taxes this year, you might be wondering about the best way to pay them. Turns out there are a few different ways to settle your balance with the IRS, and some options are better—and cheaper—than others
IRS direct transfer options are always free
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If you want to avoid paying for the privilege of sending the government money, the IRS offers its own electronic funds transfer service, either through the Direct Pay portal, or through the IRS2Go mobile app. Both allow for payments to be made directly from your checking or savings account. This service has limited scheduling options, however, and you have to fill out your personal information each time you use it, which is a pain. But it works well if you need to make a one-time payment.
Another option run by the Treasury Department is the Electronic Federal Payment System (EFTPS) portal, which has more scheduling options than Direct Pay. This tool is more commonly used by business owners to make regular, scheduled payments, and it allows for large payments up to $10 million.
Neither service charges a processing fee.
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Check or money order
You can send a check or money order made payable to the United States Treasury, but make sure that the check is mailed with Form 1040-V stating how much you owe, and ensure you are mailing it to the correct address, as they vary by region. You can find the correct address here, and more information about using this payment method here. This option is free for a regular check, but you’ll likely pay a small fee to obtain 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 either PayUSAtax, Pay1040, or ACI Payments, instructions for which are found here). However, with this option, fees are unavoidable. Debit card transactions will cost you a couple bucks per transaction, and credit cards can cost you even more, as the fee is based on a percentage of your overall payment:
- PayUSAtax: 1.96%,
- Pay1040: 1.99%
- ACI Payments: 1.99%
If you file your taxes using tax preparation software, you’ll also be charged if you pay with a credit card, and these fees skew higher—closer to 2.5%.
Even if you use a cheaper IRS partner like ACI Payments, you’ll still pay nearly $40 to process a payment of $2,000. For that reason, you should avoid using your credit card, unless it’s a matter of necessity, or, you’re using the transaction to qualify for a credit card’s welcome bonus or rewards points (this isn’t recommended unless you can pay off the card right away).
Direct debit
The IRS will accept payments using direct debit from your checking account, but only if you electronically filed your return using tax preparation software. You have to be careful with this option, though, as tax software providers can surprise you with tacked-on fees. The IRS advises you to “check with your financial institution about any fees it may charge” as part of their tax filing service.
Same-day wire transfer
A lesser known payment method is asking your bank to arrange a wire transfer to the IRS. It’s a bit of a pain, however, requiring a IRS form to be filled out—plus the fees can vary widely, depending on the financial institution. That said, there’s no limit on wired transfers, making it an ideal option for processing large payments.
Pay cash in-person
If you want to pay in-person, you can pay cash at a participating retail partner, which are listed here. The downside is that they will likely charge a few bucks as a fee, and they can only accept payments up to $1,000, per transaction.
You can also pay at your local IRS office, but many locations are closed due to the pandemic, so make sure your local office is open and that you make an appointment ahead of time.