Pay Your Taxes With a Credit Card???
Think twice before you use your credit card to pay taxes…
The deadline for tax returns is fast approaching, and the question of whether or not you should pay your taxes with a credit card may soon arise. Cash-strapped consumers may be tempted to pay their tax debt with a credit card at OfficialPayments.com, an electronic payment service authorized by the IRS for processing a wide range of federal, state and local tax payments including personal income, business, property and real estate taxes. Even though many credit cards allow consumers to earn rewards when they charge their tax payments - is it a good idea to pay your taxes with a credit card?
The fine print tells the story. “A convenience fee of 2.49% of the amount of the payment (including any penalties or interest) is charged for all federal income tax payments. The convenience fee for local payments (e.g. property taxes, real estate taxes, parking citations, utility payments, etc.) may vary. You will be notified of the fee before your payment is made.”
Do the math and you’ll realize that every $1,000 charged to your card will cost about $25, in addition to any interest that accrues each month you carry a balance. Now compare that to the benefits you’ll receive by using your credit card and you’ll find that the service fee quickly eats up any advantages of using a standard reward credit card - most of which provide just 1% cash back or an equivalent in points or other rewards. If your credit card doesn’t offer rewards, the cost of paying your taxes with this service is even higher.
The only way to pay your taxes with a credit card and benefit, is to use a card with enough rewards to outweigh the service fee. For example, several of the best cash back credit cards allow you to earn up to 5% in rebates. Using one of these offers would provide a reward of 2.5% on your next tax payment, as long as you payoff the balance before interest starts accumulating. However, most reward credit cards are not this generous. And most experts still suggest paying your taxes the old fashioned way - by check.
* To learn more on how to pay taxes with a credit card, visit the only electronic payment service authorized by the IRS: Official Payments.com
