A recent article in USA Today said that this year, credit card companies are increasingly rewarding people for paying their taxes with credit cards. Benefits such as double airline miles are being offered. While this may seem like an easy way to pay your taxes this April, it is not a good idea to fall for the credit card companies advertisement and allures.

Why It’s a Bad Idea

~You end up paying interest of up to 30% on your taxes when you put it on your credit card and then start making monthly payments.
~You are charged a fee of about 2.5% of the total tax amount by the companies that process your transaction with the government (there are only two you can work through), so even if you pay your credit card balance in full that month, you have still paid more for your taxes than if you had the money directly taken from your account.

Even keeping this in mind, the number of filers who pay with credit will significantly increase up this year because this is the first year the IRS has let businesses pay their taxes with credit cards. Individual filers have been able to pay with credit for a few years now.

The rewards promised by the credit card companies have strings attached, as they always do, so if you are paying taxes with credit to get the rewards, be sure to read the fine print. Some only give rewards if you file during a certain time period, while others require that you are not behind on any of your payments to qualify for the rewards.

As with anything else, if you can afford to pay your taxes by any other means than credit, it is wise to do so. Credit is always more expensive than paying with cash. While some people file with credit for convenience, rewards, or the added security they think credit cards offer, some may file by credit because they can’t afford to pay all their taxes right now. If this is the case, still be cautious and pay attention to the restrictions. Pay off your credit card bill as soon as possible, to reduce the amount of interest you are paying on your taxes.

This entry was posted on Friday, February 17th, 2006 at 1:59 pm and is filed under Credit, Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.