IRS Moves E-Payment Online

A system that allows U.S. businesses and individuals to make estimated tax payments over the Internet is now live, following a pilot program that began last October, the Internal Revenue Service said Thursday.

The system "provides a convenient and secure method for paying taxes that is consistent with the way people do business," said IRS Commissioner Charles Rossotti. "The Internet is an increasingly integral part of today's business community. It makes sense to offer an online option for paying taxes."

The system lets people make estimated tax payments and pay balances due with their returns. Businesses and individuals can sign up for the service over the Internet, receiving confirmation and instructions by mail. Personal identification numbers are mailed separately "for added security," the IRS said.

The IRS has been using a version of the electronic payment system since 1996. So far, businesses have used computerized methods to pay more than US$5.7 trillion in federal taxes.

Rossotti said the new Web site exceeds private-industry standards for security. Taxpayers "should feel confident that their private information will be protected," he said.

Fear Factor

Still, many consumers remain wary about filing tax returns via the Web. Studies released this spring by research firms IDC and Jupiter Media Metrix both found that people who file taxes online tend to hire professional preparers to do the returns for them. Those who did not want to file for themselves cited concerns about privacy, security and ease of use.

Yet some 35 million Americans submitted their tax returns over the Internet last year, according to the IRS, which said it expects that number to keep growing.

Enterprising Tax Preparers

Companies like H&R Block (NYSE: HRB) and Intuit (Nasdaq: INTU) are among those moving to capitalize on the growth of online tax services. H&R Block last week announced an alliance with AOL Time Warner that calls for the companies to promote each other's services. The tax preparer also is making an effort to integrate its online and traditional, in-office operations.

However, a General Accounting Office report released in March found security problems with the IRS' electronic filing system. Though no security breaches were found, the GAO said it would have been possible for unauthorized users to gain access to and modify information about taxpayer returns.

Big To-Do

With the new system up and running, businesses that deposit more than $200,000 in taxes per calendar year are required to make payments electronically.

Individual taxpayers will be able to schedule payments up to a year in advance using the Internet, while businesses can schedule up to 120 days ahead, the IRS said.