Small Business Taxes & Management

Special Report

Credit and Debit Card Fees Related to Tax Payment are Deductible


Small Business Taxes & ManagementTM--Copyright 2009, A/N Group, Inc.


The IRS has announced (IR-2009-37) that credit or debit card convenience fees charged for paying federal individual income taxes electronically are deductible for some taxpayers who itemize.

Federal law bars the IRS from paying any fees associated with these credit or debit transactions. Card processors normally charge taxpayers for convenience fees when they use their credit or debit card to pay taxes. Fees vary but average about 2.5 percent of the tax payment.

In reassessing a previous position, the IRS decided that the convenience fees associated with the payment of federal tax, including payment of estimated tax, can be included as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceeded 2 percent of the taxpayer’s adjusted gross income can be deducted.

Not everyone who pays the fees will be able to deduct them. Taxpayers first must be eligible to file a Form 1040 Schedule A to itemize their expenses. And, taxpayers must have enough miscellaneous expenses to exceed the 2 percent threshold. These expenses include items such as tax preparation costs, job search expenses and unreimbursed employee expenses.

From a practical standpoint, only a small percentage of taxpayers will be able to deduct the fees. Assume, for example, your AGI (adjusted gross income) is $110,000. The 2-percent threshold would be $2,200. Assume you're making a payment of $10,000 with your return. If the fee is 2.5 percent, that would work out to $250. You'd still need $1,950 ($2,200 less $250) in other miscellaneous deductions before you'd receive any benefit. Unless you have high investment management fees, unreimbursed business expenses, etc. you're unlikely to secure a deduction.

For details on claiming miscellaneous deductions and figuring the 2 percent limit, see Publication 529.The fees are deductible in the tax year they occur. For example, fees charged to payments made during 2009 can be claimed on the 2009 return filed next year.


Copyright 2009 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 04/13/09