With the tax deadline just around the corner, millions of Americans who have yet to file their taxes are asking: what are my options? Many haven’t filed their taxes due to owing money but not currently having the resources to cover it. This has left numerous folk asking if using a credit card to pay their taxes this year is a valid option or not. While there is nothing standing in the way of you using a credit card to pay your income taxes this year, it does not make financial sense for everyone to do so.
Below, we’ll outline the reasoning why you should or should not use a credit card to cover those filings this year.
When To Use A Debit Card
Believe it or not, the IRS does make a distinction whether you pay with a credit card or with a debit card. The fees for processing a debit card with the IRS are flat-rate, and as such, it makes sense to use this form of payment whenever you are running short on time (as in, one week before the filing deadline). When you use a credit card, however, the fees will be assessed based on a percentage of the taxes paid. If you have the money but just haven’t paid yet, then please use your debit card instead.
When To Use A Credit Card
Considering that the fee for processing a credit card with the IRS is around 1.9%, it usually is better for a person to simply mail in their payment. Still, many do not have the time now to mail their payments in and be received by the April 15th deadline. Many cards offer rewards or cash back when using them, so if you stand to gain 2% or more cash back, then the fees will be cancelled out by your cards’ rewards program. Cards that currently have 0% APR on them for a limited amount of time may also be used if none of your cards offer rewards for purchases and expenditures.
When Not To Use A Credit Card
If you have any interest charges or APR on your credit cards, then it is a bad idea to use them for paying this year’s tax burden. The IRS offers financing options that will keep your “interest rate” around 3%, so virtually all credit cards will end up charging you more than it would cost to work out an arrangement with the IRS directly. Even though there are one-time fees associated with a payment plan, it comes out better in the end than stacking that debt onto a credit card.