Feb 11, 2021 - Economy & Business

A $4.7 million debit charge

Picture of a card reader with a $100 bill

Illustration: Aïda Amer/Axios

Thanks to a quirk of the U.S. payments processing infrastructure, some taxpayers are getting thousands of dollars in cash back on their 2020 tax payments.

How it works: If you write a check to the IRS, you're never quite sure when they will cash it. There's a similar uncertainty if you allow the agency to debit your tax payments directly from your account — you don't know when that will happen. There's a little-known third option, however, which is entirely under the taxpayers' control.

  • If you pay your taxes by debit card, the IRS will charge you a flat fee of about $2.55. That fee gives you complete control over exactly when the money leaves your account.

Driving the news: One taxpayer with an account at neobank Jiko used its Debit Cards Cashback Rewards Program to make a $4.7 million tax payment, according to Jiko CEO Stephane Lintner.

  • Jiko allows customers to create a virtual Discover debit card that's valid only for a certain merchant — in this case, the IRS. So there's no risk that some other payee might inadvertently be able to get access to such funds.
  • The bank also offers 1% cash back on all debit card purchases — which means that this transaction resulted in a $47,000 payment back to the customer.
  • "I am quite sure this is the largest consumer debit transaction ever," says Hans Morris, a former president of Visa who now runs Nyca Partners.

The IRS received the full $4.7 million, but under the Byzantine agreements governing debit transactions, the IRS's payment processor had to pay more than 1% of the transaction back to Discover and thence to Jiko. That allows Jiko to pay 1% on to the customer.

The bottom line: "This is probably not going to last," Lintner tells Axios. But the payments industry moves very slowly — so it's almost certainly going to remain at least through April 15.

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