How to Pay Your Taxes With a Credit Card
Did you know that you can pay the IRS by credit card? Of course, in an ideal world, you will have enough money withheld from your salary to settle all your tax obligations for the year. However, this is not always the reality you face.
If you owe more than you can afford to pay in cash, you can certainly pay your taxes by credit card subject to the terms and conditions of your credit card agreement. The most important thing to note here is the advantages and disadvantages of paying your taxes this way.
The benefits of paying taxes with a credit card
The truth is, sometimes it is less stressful to owe your credit card issuer than the IRS. If the credit limit of your card is large enough to pay for your taxes, consider using it to satisfy your obligations to the IRS.
This way, you have the flexibility to pay off your credit card over time based on your credit card terms. Having the extra time can be really helpful, especially when you do not need to file extra forms. As a bonus, you can even earn rewards on the balance if you use a rewards credit card. If you are using a card with a long 0% intro rate, you can even avoid paying interest, too!
Disadvantages of paying the IRS by credit
The most obvious is the interest that you will pay if you are using a regular credit card. The longer you take to pay your balance in full, the more money you lose in interest. The best way to pay your taxes by credit card is to use a low-interest rate credit card or one with a promo interest rate. Note that there are convenience fees, too. The IRS can charge up to 2.49% of your tax bill.
More important, you cannot bankrupt your income tax debt. Even if you face bankruptcy, it will not discharge credit card debt incurred from taxes. You also face the risk of discrimination from your card issuer. If the company sees that you used your card to pay your income taxes, to them that is a clear red sign of financial trouble. As a result, your interest rate may be raised, your credit limit lowered, or at worst, your card may be canceled.
Considering all these, it is a must to weigh the risks if you want to pay your taxes by credit card. It is like any purchase that you charge – you have to be responsible about it and think about how it will affect your credit report as a whole.