by: Debbie Dragon

Lurking around the corner is that pesky April 15th deadline for filing your federal and state income taxes. In addition to the pressure to get these completed, you have credit card companies who are encouraging you to pay your taxes with your cards. Talk about a discouraging activity. You go from the frying pan to the fire when paying in this manner and here’s why.

Processing fees. Since the IRS allows only certain companies to process payments to them, and there is an accompanying fee that goes along with your payment. That fee can range from 2% to 3% of the amount charged. If you owe $4,000 on your taxes and pay with a card, you could also pay an additional $80 or more from this fee. Also, other fees and charges apply on your credit card account pursuant to your agreement.

Incurring Interest. You will incur interest charges on your account if you do not completely pay off the amount before the due date. This sounds a lot like double-jeopardy (it is not, but it sounds like it). Can there be anything more discouraging than paying your taxes with a credit card and owing interest on that balance, too?

Locks you into payments. Now you have payments on your credit card to pay for your taxes. If you are in an employment situation where you taxes are taken out of your check and they are not enough, then you should increase the amount so that you break even the next tax year. If you pay quarterly, then increase those payments as well.

In addition to all of this, you must consider the following reasons to be wary about paying your taxes with your credit cards. Your credit limit. If you get close to your credit limit by using your card to pay for taxes that is a red flag to the credit card company. They have certain triggers that cause them concern, and getting close to your limit is but one of them. You might experience an increase in your interest rate because you are an increased risk.

Cash advance fees. If you do choose to pay your taxes with your credit card, that your payment is not considered a cash advance. If so, then you will be assessed and additional fee which is figured as a percentage of the advance. That can add to the already large amount of fees that you incur as a result of taking this path.

Security. There is something inherently dangerous in sending in a credit card number to pay for your taxes. Writing it on your return is opening yourself up for a possible theft opportunity for those who are unscrupulous. Your card number must be protected at all times.

IRS will allow payments. Here is a tip that you have to consider before paying with a credit card: the IRS will be glad to set up a payment schedule for you to allow you to pay your taxes directly to them. It is more common than you might think. Yes, they do charge interest and any other penalties that apply, but they are not nearly as bad as a credit card would be. Consider this strongly as an alternative to using your card.

Use your refund to reduce debt. If you get a tax refund of any amount be sure to apply it to any debt that you have which can move you towards retiring that debt completely.

Using these suggestions you will see that paying taxes with a credit card is not a good idea. Make sure you use the alternatives first.

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