Smart TaxesSmart Taxes

Paying taxes with plastic may cost you

The IRS takes credit cards, but charges a fee of up to 2.35%. You might do better setting up a payment plan.

By MSN Money Partner Feb 24, 2012 10:36AM

This post is by Bill Bischoff of SmartMoney.


Worried about how you're going to pay your tax bill? It might be tempting to slap it on plastic.


After all, you can charge your 2011 federal income taxes on a Visa, MasterCard, Discover Card or American Express.


What if you want a filing extension? No problem. Just charge what you expect to owe the IRS. And if you owe estimated taxes for tax year 2012, you can charge those, too. In many states, you can put your state income-tax bill on plastic as well.


Clearly, charging your taxes is convenient. With the right card, you can even rack up some extra frequent-flier miles or other goodies to boot. So what's the big issue?


The "convenience fee," that's what. It amounts to a hefty 1.89%, 2.29% or 2.35% of the amount you charge, depending on the payment option.


This is in lieu of the fee that merchants pay credit-card companies when you charge your purchases. Only in this case, the "merchant" is the Internal Revenue Service, and Uncle Sam isn't interested in turning over a percentage of his revenues to the card companies. That means you foot the bill in the form of the "convenience fee." (Post continues after video.)

Until now, you've probably been blissfully ignorant of merchant fees, but you'll become painfully aware of their bite when they come directly out of your own pocket. The money is collected by one of the four vendors that facilitate these transactions and split the proceeds with the card issuers.


Granted, paying $9.40 for the convenience of charging a $400 tax bill to your credit card isn't really a sin. But what about paying $117.50 on a $5,000 tax bill? And unless you pay off that bill within your credit-card issuer's grace period, you'll also start getting charged interest (often at 12% or more annually).


Bottom line? You can probably find a better way to dig up the money to pay your tax bill.


Perhaps your credit union, your parents or your rich brother-in-law will help. Also, don't overlook the IRS itself. You may qualify to set up an installment payment plan with the government. If so, this may be the cheapest way to go. You'll be charged a $52 setup fee (assuming you arrange for automatic payments out of your checking account), then a monthly interest rate on the outstanding balance. Currently, that interest rate is 0.5% per month (which equates to 6% annually). However, the interest rate is subject to change every quarter. File IRS Form 9465 to get that ball rolling.


Of course, if you have a credit card with a low APR -- say 5% or less -- this could turn out to be the cheaper option. That is, provided you pay off your tab in a reasonable amount of time (i.e., before that introductory rate jumps up to something much higher).


More from SmartMoney and MSN Money:


Feb 25, 2012 4:24PM
Why not charge it. The government charges everything, so why not follow suit. Cash is irrelevant, who cares if you don't pay your debts, no one else does either. Lets borrow until we die, and let someone else pay it off.
Feb 26, 2012 5:33PM

I wonder if the government is on purpose delaying the tax refunds. I wonder how much they make in interest everyday they do not return the money. I have never heard of a law that requires a tax refund be sent within a certain number of days after a persons tax returns are received for processing. The government has done this before delaying military pay raises a couple of days to make millions on interest payments.

I am sorry but paying my taxes is going to bankrupt me and I will be homeless.

ANYONE care?

Feb 26, 2012 4:58PM
Charge your tax bill then file chapter 7 bankruptcy and ditch what used to be not possible to bankrupt out of.
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