IRS: Credit, Debit Fees On Tax Payments Are Deductible

From the WallStreetJournal:

Taxpayers who used a credit or debit card to pay taxes last year may be eligible for an additional deduction on their 2008 return, the IRS announced Tuesday.

In a reversal of a previous position, the IRS said fees that credit or debit card processors charge on electronic income tax payments would be deductible as a miscellaneous expense, for those who itemize deductions.

The fees vary, but average 2.5% of the tax payment, the IRS said in a news release. Those fees are charged directly by the card payment processor to the taxpayer, because federal law bars the IRS from paying fees associated with the transactions.

Not everyone who pays taxes using a credit card or debit card will benefit.

First, only those who itemize may benefit from the deduction. Second, the value of miscellaneous deductions, including the credit card fees and other items such as unreimbursed employee expenses and tax preparation fees, are deductible only to the extent they exceed 2% of adjusted gross income.

Other examples of miscellaneous deductions that count toward the 2% AGI threshold include union dues, safe deposit box fees and legal fees.

"By itself, the credit-and-debit fees deduction alone won't be enough to get anyone past the 2% threshold," said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants. "But for someone who has other miscellaneous deductions, it could be a nice benefit."

Taxpayers who use a credit or debit card this year to pay taxes must wait to deduct the fees on their 2009 income tax return, due April 15, 2010. Those who used a payment card to pay taxes last year have until next Wednesday, April 15, to determine whether they are eligible for an additional deduction.

Most individuals pay their taxes by check. More than 4 million taxpayers paid taxes electronically, the IRS said. That figure includes not only those who paid by credit or debit card, but also those who paid by direct debit from their bank account, which is not generally subject to a fee.