Setting up payment plans with the IRS or applying for a loan are last resorts if you don’t have sufficient funds to cover your tax liability for the past year. The IRS accepts payment by credit cards on Federal Income Taxes. This means that instead of going for a more drastic alternative, you can make your tax payments with your credit card. They accept Visa, MasterCard, Discover and American Express.
If you pay your taxes through your credit card you might be able to save money too. In this article, we’ll discuss the pros and cons of using credit cards to pay your taxes.
Pros of Using Credit Cards to Pay Your Taxes
Payments made with credit cards are more convenient than other modes of payment. The IRS will accept any credit card payments that are made via an email, a phone call or through their built-in e-filing system. Moreover, you also have the added benefit of tracking your payment and authorizing the transaction quickly and without any payment vouchers.
Credit Card Rewards
Those of you who have signed up for rewards credit cards have the opportunity to qualify for rewards points, extra miles or cash back on your transaction. Rewards are substantial especially if your tax liability is over the hundred dollar mark. Once you’ve earned rewards points you can redeem them any time. Before you get your hopes up, be sure to read the terms and condition of rewards on your card – not all rewards credit cards give you the chance to earn rewards on IRS payments.
Credit cards offer convenient payment methods to not only cardholders but the merchants receiving the payments too. By choosing to pay your taxes with your credit card, you ensure that your payments are made on time. This way you’re not subject to late fees or penalty charges. You can pay with your card upfront and then pay off the debt later.
Cons of Using Credit Cards to Pay Your Taxes
The IRS will not charge you extra for using your credit card to pay your taxes. But you might still be liable to pay a flat fee or a convenience fee. Generally, the company will charge you a convenience fee that is equal to a predetermined percentage of your transaction charges.
Credit Report Changes
If your tax liability is larger than usual and you think you’ll be carrying the balance for at least a few months then it could be potentially harmful to your credit score. If you’re not able to pay it off in an equitable amount of time then it will affect your credit report negatively.
High Interest Charges
Charging your tax liability on a credit card that has higher interest rates will cost you a lot more if you don’t pay off the debt in time. By this statement, the longer it takes you to pay off your debt the more interest you will have racked up. This is risky because you are in a position to cross your credit limit at times.