Should You Pay Your Taxes With A Credit Card?
In the recent years, even the Internal Revenue Services (IRS) has started to accept credit as a form of payment. After the introduction of the Taxpayer Relief Act in 1997, the federal government began to accept income tax payments by “commercially acceptable means” such as debit and credit cards.
While this has made the process of tax payment easier for some, as well as the benefit of having your tax returns automatically deposited to your bank debit account, paying taxes with a credit card may not be smart if you fail to consider the full costs involved as well as the impact it may have on your credit score.
Analyze the Costs
Before you pay your taxes through credit cards, analyze the costs. The IRS website states that for taxes due on April 15, 2015, a convenience fee between 1.87 and 2.35 percent of the amount payable will be added to your bill if you pay with credit. This fee is charged by the processing companies not the IRS.
This implies that someone who uses a credit card to pay $4,000 tax bill will have to pay $74 to $94 in convenience fees. In addition to the process fee, putting your taxes on credit means that you will have to pay credit interest rates every month that you don’t pay off this debt. If you can, use your debit card instead of credit.
Impact on Your Credit Score
Paying your taxes with credit cards can also negatively affect your credit score if your credit utilization is high considering your available credit. To fully understand the impact of this, ask to speak to one of our credit specialists. We can explain the relationship between credit utilization, debt and your credit score. Paying your taxes with a credit card is likely not a smart option unless you know for sure that you can pay off your credit card almost immediately.