Reasons to Reconsider Paying Your Taxes by Credit Card

Paying taxes with credit cards seems convenient due to the ability to make smaller payments to the credit card company. However, the IRS also offers payment plans, often with a lower interest rate and you are able to select how much you can feasibly pay each month. Overall, credit cards may be the easiest way to make the large payment, but it definitely has its drawbacks.

Missing Payments

As long as all of your payments are made on time, you should not experience higher interest. This changes when you miss a payment. The credit card company is going to charge you a higher rate of interest on the next payment you have to make.

Higher Interest via Credit Card Company

The federal government does charge interest when a payment plan is required to pay tax debt. This is often lower than the interest rate on your credit card. Many taxpayers obtain a new credit card with an introductory interest rate period. The hope is often to pay the tax debt prior to that introductory interest rate period expiring, but that does not always happen, thus leaving you paying more in the end.

Bottom Line

When you realize that you are going to have to pay taxes and not receive a refund, it is important to decide what you can pay each month. If your options are better paying the IRS via their payment plan, that is the better route to take. Those that owe small amounts really are better off working with the IRS directly. The IRS offers a 120-day fee and interest free period to pay your owed taxes.

Image credit: Jeff Rose