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Paying bills using a bank’s bill-pay system (Long version of post)

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    Paying bills using a bank’s bill-pay system (Long version of post)

    Most banks have a bill-pay feature allowing a customer to pay his bills by having the bank send funds to the payee either electronically or by mailing a check. I have used my bank’s bill-pay system for nearly fifteen years, and it works great. In fact I no longer even have any checks for my personal or business accounts.

    For payments that will be transmitted electronically, my bank (and others with which I am familiar) require just one business day lead time ... i.e. a payment can be authorized on a Monday for delivery on Tuesday. For payees who will be mailed a check, there is usually a three-day lead time ... i.e. a payment can be authorized on a Monday for delivery on Thursday via a mailed check. Checks are dated as of the anticipated delivery date. This raises the question of when, exactly, is a payment treated as “paid” for tax purposes, by a cash-basis taxpayer, if a payment is authorized by the bank’s customer on one of the last few days of the year? A check mailed by the bank on December 28th, 29th or 30th in 2016 will be dated and is expected to arrive at the payee’s address on January 3rd, 4th or 5th 2017 respectively, and an electronically transmitted payment that starts on December 30th will be delivered on January 3rd 2017. (It is true that some banks will deliver payments sooner for an extra fee, but I am referring here to the usual time frames, not “rush” payments.) The dates appearing on all the bank-mailed checks I have seen are the target delivery dates, not the mailed dates, so in this regard they appear different from a check sent by the payor himself, which would normally be dated on the date the check was written and mailed.

    So, when late-December 2016 payments like this are for business expenses or tax-deductible items, when are they paid? Can they be treated as paid in the year the bank started the payment in 2016? Or are they considered paid when they are delivered to the payees in 2017?

    If those who reply can cite an authoritative source in support of their reasoning, that would be appreciated.
    Roland Slugg
    "I do what I can."

    #2
    Reference pub 538. Also when making a payment consider date of check whether sent electronically or not electronically (US mail)
    Last edited by TAXNJ; 12-31-2016, 08:34 PM.
    Always cite your source for support to defend your opinion

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