IRS clears way for direct credit and debit card acceptance

New federal regulations taking effect Oct. 19, 2026, give the Internal Revenue Service greater flexibility to accept tax payments by credit and debit card, potentially changing how the agency contracts with payment processors and collects transaction fees.

The final regulations, published in the Federal Register, implement provisions of the Taxpayer First Act of 2019. They remove longstanding restrictions that prevented the IRS from paying fees under contracts for card-processing services and charging taxpayers to recover those costs.

The changes allow taxpayers to make card payments directly to the IRS without being routed through separate third-party payment processors. However, the regulations do not establish a new processing service or announce changes to existing processor contracts.

New approach to processing fees

Previously, the IRS could contract with payment processors to facilitate card transactions but generally could not pay processing fees itself. Instead, third-party processors charged taxpayers directly, typically assessing a percentage-based fee for credit card payments and a flat fee for debit card transactions.

Under the new framework, the IRS may pay fees under its processing contracts, provided it recovers the full amount from taxpayers using those services. Reimbursement fees must be collected at the time of payment, in addition to the tax owed, and cannot exceed the processing costs incurred by the agency.

The regulations also require the IRS to seek to minimize processing fees when negotiating contracts. Reimbursement fees are not considered federal taxes and are ineligible for tax refunds or credits.

According to the Treasury Department, the changes could allow the IRS to receive benefits available to other card-accepting organizations, including guaranteed receipt of funds and reduced paper-check processing costs.

Implications for payment providers

The regulatory changes could affect companies that process federal tax payments by creating opportunities for different contractual arrangements between the IRS and payment service providers. Although third-party processors will continue to play a role in handling transactions, the IRS now has greater discretion over how those services are contracted and how associated fees are collected.

The regulations also support broader federal efforts to modernize government payments and reduce reliance on paper checks. The IRS already offers several electronic payment options, including bank transfers, card payments and digital wallets.

The final rules were adopted without changes from regulations proposed in July 2024. Treasury and the IRS received eight public comments, most supporting the proposal. Commenters cited the potential for simpler payment procedures, lower costs and improved access to electronic tax payments.

The rules apply to tax payments and reimbursement fees made on or after Oct. 19, 2026. Their practical impact on processors and taxpayers will depend on how the IRS implements its expanded contracting authority and whether it introduces new direct card-payment arrangements.

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