IRS: You can deduct fee for paying taxes by credit card

Ruling creates a break for paying tax by plastic -- but only for some

The Internal Revenue Service has decided that taxpayers who use their credit or debit cards to pay federal tax bills need a break. 

The IRS has reversed its stance on the fees that card companies charge to process electronic tax payments. The charges vary, but average around 2.5 percent of your tax bill.

But don't do your tax happy dance just yet. This change will not help every filer.

The fee must be counted as a miscellaneous deduction. That means you must itemize and include the charge in the "job expenses and certain miscellaneous deductions" section of your Schedule A.

Even then, you can only deduct the amount that exceeds 2 percent of your adjusted gross income. If that's $40,000, for example, then your miscellaneous items must come to more than $800.

And then only the amount over that percentage counts, meaning $810 in miscellaneous expenses will get you a $10 deduction to add to the other times on your Schedule A.

Still, the move makes sense.

Among the miscellaneous expenses that can be counted on Schedule A is the cost of tax preparation. This includes such things as your accountant's fee, tax prep software and the price of tax guide books. Allowing you to include the cost of actually paying your taxes by plastic is a logical extension of the process.

And the IRS no doubt hopes it will boost e-payment numbers.

In announcing the new deduction, the IRS said that although around 4 million filers electronically paid their taxes -- and the surcharge -- last year, most filers who owe still send in their tax payments by check.

See related: How taxes can help -- or hurt -- you at tax time

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Updated: 12-18-2018