Even though everyone’s favorite day of the year was just a few days ago, we can still talk about taxes and cover another option for you to next year, or for any of you last minute filers who had to file for an extension. Did you know you can pay your taxes with a credit card? As crazy as it may seem, it’s true. Unfortunately, like all things, there are pros and cons and paying your taxes with a credit can swing both ways. Here are just a few things you should look out for if you ever want to pay your taxes with a credit card.
First you might as, why would I even think about paying my taxes with a credit card? The first and most obvious answer to the question, is that you don’t have the necessary funds to pay towards Uncle Sam at the moment. If you delay your payment for taxes, the monthly late fee is 1% of balance due, which comes out to $10 for every $1,000 owed…. or you can pay on time with a credit card.
Here are the PROS and CONS to paying your taxes with a credit card:
PROS – Put it on the Card!
I’ve talked about how awesome American Express is with rewards and customer support for their members, especially business card holders. If you had several thousands of dollars to pay in taxes, you could throw that onto your credit card and rack up a decent amount of rewards points. Some credit cards have restrictions on what type of purchases qualify for rewards points, so be sure to read the fine print.
(American Express also offers 5% back on all Yahoo Business Solutions. Yes! That includes Yahoo Search marketing)
If you pay your taxes with your credit card, you can pay it off past the April 15th deadline, by paying your credit card company directly. This option is also available through the IRS, but there is a decent amount of paperwork you will need to file and fill out.
CONS – Keep the Plastic in Your Wallet!
Depending on your current credit card, you may have a decent or very high interest rate. If you throw a large chunk of owed taxes onto your credit card, you could end up paying a lot more than you actually owed in taxes. Interest can rapidly build up on you!
Uncle Sam is always going to get his money somehow. If you pay your taxes with a credit card, not only will you have to keep an eye on your interest rates and late payments, but the IRS will also get you for a 2.49% convenience fee! If you owe $10,000 in taxes, you are looking at an extra $250, just for using your card!
Credit cards and rewards programs are awesome, but I would stay away from paying your taxes with them. Just like regular purchases on your credit card… interest rates, late payments and your credit score can all be affected by your decision to pay your taxes with your credit card. (if and when you can pay it off) Unless you really want those rewards points and/or have a stash of cash to pay off your credit card tax bill right away, keep the plastic and taxes separate next year.