QUESTION: Has anyone ever formally proposed to let taxpayers pay their taxes by credit card? It seems to me that I heard a few years ago that there was such a movement, but I have never heard what became of the talk.--N. P.
ANSWER: There has been talk for several years of allowing payment by credit card, and the Internal Revenue Service is considering such a proposal once again. But it is still too soon to say how serious anyone is about adopting it.
IRS Commissioner Lawrence B. Gibbs broached the proposal at a recent hearing of a House Ways and Means subcommittee. He said the IRS is actively discussing the issue, chiefly because it would give consumers facing a big tax bill at filing time easy access to money they might not otherwise have a way to get.
As the proposal stands, the IRS would permit taxpayers who pay their taxes once a year to pay by credit card any taxes still due on April 15. Those who pay taxes quarterly wouldn't immediately qualify for credit card payments. Assuming that the IRS itself agrees to the plan, it would still require approval from the Treasury Department and Congress.
Why would the IRS want to hassle with credit card payments when they can require cash? As Gibbs told the subcommittee, the agency figures that it would speed the collection process because taxpayers might be less inclined to wait until the deadline.
Q: I am retired, but I still get a pension from my former employer. Does this pension money prevent me from contributing to an IRA under the new tax laws?--R. P.
A: Lawmakers didn't make the answer to your question entirely clear, and the law is too new for that point to have been tested. But specialists who have spent a great deal of the last four months studying tax reform say their best guess is that you are one of the lucky few who are still entitled to the tax breaks of an individual retirement account.
Under the new law, taxpayers who are either covered by a retirement plan at work or who are self-employed and are covered by a Keogh retirement plan can no longer deduct all of their contributions to an IRA for the 1987 tax year or for subsequent years. Higher-income workers lose their deduction entirely. (Every working taxpayer has until April 15, however, to make a contribution of up to $2,000--or the full amount of his annual salary, whichever is less--for the 1986 tax year.)
That is all pretty straightforward. The confusion is in the words actively participate . Lawmakers decided that anyone who "actively participates" in an employer's pension plan will lose all or part of the tax deduction for IRA contributions.
Tax specialists aren't entirely clear about who is an active participant. But the consensus at the moment seems to be that retirees can't be active participants in a former employer's retirement program because they aren't performing any work for the employer. And often a condition for being covered by a retirement plan is that one must perform work of some kind for the employer.
Even fuzzier is the matter of retirees working as consultants for former employers. They aren't full-time employees, but they do perform work for the employer. Nonetheless, many specialists believe that consulting retirees, too, are entitled to keep making tax-deferred payments to an IRA--so long as they don't actually go back on the payroll.
Conversely, employees who continue working past normal retirement age can't escape the limits placed on their contributions by the new tax law just because of their age. They can, however, get around the new limits if their retirement plan stops accruing benefits once they reach retirement age.