It’s getting towards that time of the year again when tax bills will come due and many will hope for a big refund to save them from financial disaster.
If you owe the IRS, one of the payment options is to use your credit card to pay the bill. But the IRS is special. They get to violate one of the most sacred covenants of credit card merchant agreements and charge you, the taxpayer, a surcharge for using your credit card to pay the bill.
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The surcharge is currently around 2.5%. That’s the amount that will be added to the amount you owe just so you can use your credit card to make the payment.
And if you are using the credit card to pay the tax bill because you don’t have the money to pay the taxes, it is cheaper to have the government charge you interest than paying through the roof interest rates on a credit card balance.
Most people forget that taxes charged on credit cards are not dischargeable in bankruptcy, so not only will you pay a surcharge by paying your taxes with your credit card, you’ll potentially pay a lot higher interest and you are screwed in bankruptcy.
Now the stinkin’ thinkin’ that leads many to consider using the credit card is so they can get the reward points. But let’s look at a $10,000 tax bill and see how rewarding that will be.
If you charge $10,000 on your card to pay the IRS, you’ll have to pay an additional $250 just to use the card. Plus it is exceedingly doubtful that the benefit that you’d get from running $10,000 across your card is going to get you anywhere near a $250 reward benefit. Even if you did it for the air miles, the vast majority of air miles go unclaimed. You would have just paid $250 for reward points you’ll statistically never use.
If you have to pay the IRS, write them a check. It’s as close to a free payment method as you can get and it won’t land you deeper in debt.