If you’ve waited until now to file your taxes, you must be feeling the pressure to finish them fast. With just days to go until the April 15th deadline, it’s time to stop procrastinating and get it done. And the first step is figuring out how to pay your taxes. There are many ways to do it, but using a credit card can be a convenient and easy way to pay them.
Luckily, the IRS accepts credit card payments for federal income taxes. If you have an American Express, MasterCard, Visa, or Discover card, you can use it to make a tax payment. But should you use a credit card to pay your taxes? Although it may seem like your best option, there are both pros and cons of paying taxes with a credit card:
Pros:
- It’s easy. The IRS will accept credit card payments made online, on the phone, or through the e-filing system. You already have your credit card, and all you have to do is authorize the transaction. It’s a simple and fast way to pay off your taxes.
- Credit card payments are immediate, so the government will receive the funds as soon as you swipe the card. Using a credit card before April 15th will insure that you have no late payment penalties or other fees from the government. You will not be indebted to the IRS, but you will still have to pay off the debt to your credit card company in a timely manner.
- By using a rewards credit card, you have the opportunity to earn points, cash back, or frequent flier miles for paying your taxes. If your taxes are more than a few hundred dollars, you can rack up some significant amounts of rewards. However, check your credit card’s rewards terms first, as many credit card companies block tax payments from counting towards your rewards.
Cons:
- You may end up having to pay a convenience or flat fee as a percentage of your transaction amount. Research this beforehand, and make sure you authorize the transaction with a company that charges the lowest fees.
- Make sure not to max out your credit card. With high taxes, you may not be able to pay it all off on one card. Be sure not to swipe and realize later that you have gone over your credit limit. You’ll then have to deal with overdraw fees, interest charges, and the initial amount. Plus, your credit score can be damaged!
- If you do charge your taxes to a high interest credit card, be careful about paying it off. You will accumulate interest charges each month that you are unable to pay the balance. And these charges can get very high! So, even though swiping your credit card may seem like a quick solution now, think about whether you’ll be able to pay it back by the due date. You don’t want to end up in more debt than you can handle!
- Your credit score may go down if your taxes are high. If you charge a large amount to your credit card, your credit utilization ratio will go up. It will look like you are using a large amount of the credit available to you, and lenders look unfavorably upon that. Your credit score could be damaged by having a higher utilization rate.
