WASHINGTON, April 9 (UPI) -- Paying taxes is hard enough, but the thought of slapping down your credit card probably makes it even harder. Oh, you'll use your credit card for dinner and drinks, perhaps a bit of jewelry, maybe a new DVD player -- but for goodness sakes, not for taxes.
Confirming this, research firm Ipsos-Insight has found in a recent study that American taxpayers have been slow to embrace the option of paying pay Uncle Sam with their credit cards. In a survey of 1,000 adults, Ipsos reports that while 63 percent of American adults are aware that the Internal Revenue Service accepts credit cards, only 1 percent plan to use a credit card to pay their incremental Federal income taxes the next time they owe.
Why so few -- because of the so-called "convenience fee" which the credit cards charge users for using their cards to pay their taxes.
"The barrier to broader use is clearly the large convenience fees being charged directly to the taxpayer for this service," said Greg Mahon, senior vice president with Ipsos-Insight's Financial Services practice.
Mahon noted that depending on the service provider, a credit card convenience fee of anywhere from 2.25 percent to 3 percent is charged to the taxpayer who pays 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 which merchant usually pay credit card companies to process their transactions.
"In an effort to broaden taxpayers' payment options, the government had to agree to allow credit card payment service providers to charge a convenience fee to taxpayers. 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," Mahon said. "While the government has succeeded in making more payment options available to taxpayers, the heavy convenience fee being charged to consumers outweighs the other benefits of using a credit card, such as rewards points or payment deferral."
Currently such major cards as MasterCard, Visa, American Express and Discover participate in the program.
According to the Ipsos study, those polled showed extreme resistance to paying the convenience fees. Three out of four (76 percent) said they "definitely will not" use a credit card the next time they owe Federal income taxes. Instead, they will use either a personal check (70 percent), money order (12 percent) or direct debit from bank account (9 percent). The study found that if paying taxes by credit card had no service free then 34 percent of taxpayers would use it.
"Most consumers are looking for ways to trim $100 here and there from their tax bill, not add $100," Mahon said.
He noted that further adding to taxpayer resentment of the fee is the fact that it is unique to Uncle Sam -- "when you go to Wal-Mart or anywhere else, you don't have to pay a convenience fee" to use a credit card.
Mahon added that this year 15 percent of Americans expect to pay an average of $3,000 to Uncle Sam on or before April 15 -- an attractive sum to credit card companies.
"But with only 1 percent of taxpayers looking to use the service, there does seem to be some question about the long term viability of this offering," Mahon said. "As a matter of fact, Visa still considers their participation a pilot test. They may very well decide to pull out of the program if consumer demand remains low or if they believe the convenience fees charged ultimately denigrate the Visa brand via customer dissatisfaction."
He added that to make this program work, the IRS and the credit card companies need to come up with a plan that significantly reduces the convenience fees charged to taxpayers.
"Our research indicates a significant number of taxpayers would use this service if the fees charged to them were 1 percent or less. If the IRS decides they want broader usage of this payment option, they will need to find a way to pay the card companies a processing fee, just like the millions of other merchants worldwide," Mahon said.
