IRS Payment Plan Is Put on Hold--Not on Plastic

Although this summer’s tax law was supposed to allow taxpayers to use credit cards to pay their federal taxes, major credit card companies--Visa, MasterCard and American Express--say they or their member banks aren’t expected to do business with the IRS because the law doesn’t allow the federal government to pay the banks the typical merchant fees for credit card transactions.

Without a merchant agreement with banks, the Internal Revenue Service won’t be able to access the credit card payment system to process and verify individuals’ tax payments. And the credit card banks are highly unlikely to sign such an agreement with the IRS unless they get paid for their efforts, industry analysts said.

“It does not make sense to authorize the federal government to accept a credit or debit card while prohibiting any fee for processing of those products,” said William P. Binzel, vice president of government relations at MasterCard International, a major credit card association.

However, arrangements exist where cardholders have the option of using a credit card and paying the merchant fees themselves. Such fees are often around 2% of a purchase, although American Express generally charges more.

The original language of the Taxpayer Relief Act would have allowed the government to pay such fees--similar to arrangements at the Customs Service and Postal Service--but the fees were stripped out in the last days of negotiations involving the House, Senate and White House.

Citibank, the nation’s largest credit card issuer with 38 million pieces of plastic in circulation, described the lack of fees as “an economic equation that doesn’t work.”

“To do business where a discount rate would not be allowed would be economically unfeasible for us,” said Gregory Tarmin, public affairs director for American Express.

But a major competitor to Visa, MasterCard and American Express--Discover card and its related Novus-branded cards--doesn’t see a big problem. “We are enthusiastic about the potential business opportunity,” said Discover spokeswoman Beth Metzler, who added that no decision had been made on whether Discover would do business with the IRS.

Orange and San Diego counties are among local governments that accept Discover and Novus cards for a variety of local taxes with the customers paying the merchant fee, Metzler said.