Paying Taxes with a Credit Card - Dollar Stretcher Guest Bloggers
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Paying Taxes with a Credit Card

by Bill Hardekopf

When it comes to paying income taxes, the Internal Revenue Service doesn't really care whether you pay by cash, check, debit or credit card. A significant number of people have opted to pay with a debit or credit card since electronic payments were first authorized by the 1997 Taxpayer Relief Act.

While convenient, paying your taxes by a credit card can have significant drawbacks. If you charge your taxes and don't pay off your card balance in full, you will be subjected to your card's high interest penalties each month you carry a balance.

In addition, card payments to the IRS are processed by third-party providers. There are five companies that are approved by the IRS. They each charge a processing fee, ranging from 1.88 percent to 2.35 percent. No part of the service fee goes to the IRS. While this fee may be deductible, it can still add a significant burden to your tax bill.

If you feel you must pay be credit card, here are a few additional tips:

  • Find out your credit limit before you charge your taxes. Debt utilization is a major factor in credit scores. If you use too much of your available credit, you can lower your credit score.

  • Make sure your payment is treated as a purchase, not a cash advance. The cash advance APR can be as high as 25 percent with some cards, and the cash advance fee varies from 3 to 5 percent, depending on the issuer.

  • Payments can not be cancelled.

  • You can also pay with a debit card and the fee is much less expensive. Every IRS-approved e-pay service provider charges under $4 to pay by debit card.

Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.

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