Paying Taxes with Credit Card
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Several third-party companies offer a way to pay your taxes with a credit card instead of cash, but should you? Most financial advisors say that it's never a good idea to pay with anything but cash; however, besides the convenience factor, a savvy consumer can find ways to eke out a little benefit from choosing plastic over cash from now until April 15th.
The Problem with Paying Taxes with a Credit Card
A downside to paying your tax bill with a credit card is the "convenience fee" or "card fee" that these third-party companies charge to process your payment. These fees vary but are between 1.88% and 2.35%. The IRS lists which companies process credit card tax payments, and how much they charge.
Because of the extra cost involved, it's obvious why most experts suggest using cash to pay for taxes. Even with the typical cash back reward of 1% on charges, you'll still wind up paying more out of pocket by choosing a credit card rather than cash to pay your taxes.
Very Hidden but Valuable Benefits
Still, many taxpayers who find they owe more than expected might have little choice than to use their card and take some time to pay back their debt to the taxman. If you are one of those people this year, know that there are ways to cut your losses – and possibly even come out a little bit ahead.
If you have a card that requires a high minimum spend to get extra bonus points in the introductory period of the card, a high tax bill could easily help cover that amount.
Another way to get a little bit ahead is to pay your taxes with a new card that offers a 0% introductory APR for a set period. This way, in exchange for that convenience fee, you will at least get a bit of interest-free breathing room to pay off your tax bill over an extended period. With some cards offering a 0% intro rate for over a year, this is a good way to ease the pain of a high tax bill.
There is another option if you're not financially able to pay your tax bill immediately. You can consider applying for an installment agreement with the IRS to set up monthly payments rather than pay the whole bill up front with cash or credit card.
Of course, the most cost-effective way to pay your taxes is cash. However, there are some ways to offset the convenience fee for those who plan carefully and choose the right card to use by tax time.
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Although a number of third-party companies are now offering to let taxpayers settle their tax bills with credit cards instead of cash, a CreditDonkey.com survey suggests that this is an idea whose time has not yet come.
Survey says savings! This year, 56.1% of respondents to a CreditDonkey.com survey said they are going to save their refund money instead of spending it on something frivolous...like a pair of really high-end sneakers.
What do you think about Paying Taxes with Credit Card?
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