Can I Pay My Taxes With a Credit Card?

Tax season is upon us, and many people are discovering they owe money to the Internal Revenue Service (IRS). (Still haven’t filed? You may want to read these 50 things to know if you haven’t done your taxes yet.)

This year, you have until April 18 to figure out how to pay taxes — April 15 falls on a Saturday, so taxes aren’t officially due until the following Tuesday. While there really isn’t a way to lower your tax bill at this point, although proper planning could lower it for next year, you may be wondering if you charge the bill to your credit card.

The short answer is yes, you can pay your taxes with a credit card. In fact, doing so may actually benefit you, if you’re using a rewards card. But there’s a lot to consider before doing you go this route.

Should You Use a Credit Card to Pay Your Taxes?

The answer here is maybe. If you have the means to pay your taxes in cash but are looking to earn some rewards, then a big tax bill is certainly a good opportunity to do that (assuming you pay the card off in full and don’t lose rewards to interest fees — more on that in a bit). But if you’re considering using your credit card to pay your taxes simply because you can’t afford them right now, the more prudent financial decision is very likely to talk to the IRS about a payment plan. Whatever you do, don’t avoid paying your taxes. It can have lasting ramifications for your finances, including your credit. You can see how your financial choices are affecting your credit by taking a look at your two free credit scores, updated every 14 days, on Credit.com.

Remember: There Are Fees

The IRS is contracted with three different companies to collect payments. These companies impose convenience fees that range from 1.87% to 2%. (You can read more about how to pay your taxes with a credit card here.) In order to profit by paying your taxes with a credit card, you have to earn more than the fees they are charging you.

There are a lot of rewards cards out there that offer 1.5% to 2% cash back on purchases.  But if you’re paying 1.87% and earning 2% you aren’t profiting much (on a $5,000 tax bill, you earn $6.50).

Paying With an Existing Card

If you don’t want a new card, or think you won’t qualify for a rewards card, it can still be advantageous to use your existing card can have advantages over paying your taxes through your bank account, even if it doesn’t have cash back. Credit cards give you a grace period from when you charge, to when you have to pay. Let’s suppose your card cycles on the eleventh of the month, so you pay your taxes on April 12. The next cycle ends on May 11 and your payment is due on June 11. That’s two extra months to hang onto your money and not incur any interest.

Considering a New Card Instead?

There are a lot of options out there, so you’ll want to think about which one would be most financially beneficial. Here’s an example: The Chase Sapphire Preferred card (read our review here) offers a 50,000 point signup bonus if you spend $4,000 in the first three months.

So, let’s suppose you have a $5,000 tax bill. After factoring in the fee, you spent $5,093.50, and you have 55,093 points available. If you cash out your points, you earn $550.93, a profit of $457.43. Not bad for a bill you were required to pay anyway. (It’s worth noting that this particular card does have a $95 annual fee, which is waived for the first year.)

If you plan to travel, then your rewards could be redeemed for a bit more. When you use your Chase rewards points to book airfare, hotels, car rentals or a handful of other travel expenses, you get a 25% bonus. So that $550.93 actually turns into $688.66 toward travel expenses booked through the Chase Ultimate Rewards portal. In other words, you’ve just paid for a plane ticket to just about anywhere in the U.S. (Have a Chase rewards card? Check out these three hacks for using the Chase Ultimate Rewards program.)

Can’t Pay the Card Off Right Away?

Now, if you can’t afford to pay off the balance of your tax bill right away, the above is moot. Here’s why: There’s no introductory 0% APR on balance transfers or new purchases with the Chase Sapphire Preferred, or many cards like it, so unless you can pay it off right away, you’re going to incur interest on that balance. This particular Chase card comes with a variable APR of 16.49% to 23.49% based on your creditworthiness, which would quickly offset any rewards you may earn.

If you can’t afford to pay your taxes right away, but you’re set on using your tax bill to net some nice rewards, there are some cards that offer a 0% APR on new purchases that can also give you some nice rewards, like the Discover it card.

The Discover it card (read our review here) comes with an introductory 0% APR on purchases and balance transfers for the first 14 months. After the introductory period is over the APR will change to a variable 11.49% to 23.49%. When you use the Discover it card to pay your taxes, you will receive 1% cash back. Additionally, Discover will match all cash back earned for the first 12 months. That means, sticking with the $5,000 tax bill, the overall cost would be $5,093.50. Including the cash back match, you would earn $100 in cash back, making your overall profit $6.50. While this isn’t a lot of money, you were also given up to 14 months to pay off your bill without accruing interest, which may be an even bigger reward for some people.

At publishing time, the Discover it card is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

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Got a Multi-Thousand Dollar Tax Bill? Here’s How to Pay It Off

You do have options if you can't cover what you owe good old Uncle Sam.

This year I owe quite a bit of money in taxes.

This amount (let’s call it “in the many thousands”) doesn’t come as a complete and total surprise since I made more cash last year than I did the year before, but it’s a large amount all the same. As a freelancer I’ve learned to sock away 30% to 40% of each paycheck into a savings account labeled “for taxes,” so I’ll be OK to pay it. But, since a recent survey by the Federal Reserve found 31% of people couldn’t even pay for a $400 emergency expense and 28% said they would need to borrow that money from friends or family, some other people might not be so lucky when Uncle Sam comes calling.

Luckily there are a few things you can do if you’re saddled with a tax bill you just can’t pay. Here’s how to tackle that debt to Uncle Sam.

1. Start at the Source

If you can’t pay your tax bill in full come April, fear not — you won’t be thrown in jail. The IRS offers a few ways to potentially alleviate the sticker shock. You could apply for an online payment agreement that allows you to pay your tax liability over time, or you could work with the IRS to settle for less than the full amount owed. That’s called an Offer in Compromise, and you can learn more about it — and if you qualify — here.

2. Ask to Have Your Penalties Reduced

Under certain circumstances — as in you or your spouse dealt with a serious illness last year or had an unusual tax event — the IRS has been known to work with taxpayers to waive certain penalties. Try writing a letter to explain the situation in detail, and be sure to specifically ask for an abatement. It’s worth a try.

3. Consider a Loan

If you’re in good financial standing otherwise, a personal loan through your bank with a decent interest rate could help you pay off a large tax bill in due time. If you don’t have good credit but you’d still like to consider this option, there are ways to go about getting a personal with bad credit. You can try talking to the bank or credit union with which you already do business. You can also see if there’s anything you can do to improve your credit ahead of filling out applications. Some ways to do so include paying down high credit card balances, disputing errors on your credit report and shoring up any late payments. If you’re not sure where your credit falls, you can view two of your scores for free, updated every 14 days, on Credit.com.

4. Take Out a HELOC

A HELOC — or home equity line of credit — often offers interest rates that are lower than credit cards or potentially even personal loans, plus your interest could be tax-deductible. The downside is that defaulting on this type of payment could mean losing your home — not something you want to take lightly. Be sure you know what you’re getting into before taking this course of action — learn more about it here.

5. Put It on Your Credit Card

While it should only come as a last resort, paying your bill on a credit card allows you to pay your debt on time (at least as far as the government is concerned), while taking some time to pay it off in full on your credit card. If this is the way you’ll be paying your taxes, it’s worth researching the best 0% annual percentage rate (APR) credit cards on the market right now so you can take your time paying off the bill without paying interest while doing so. (Quick explainer: 0% APR credit cards let you avoid paying interest on a balance for a set period of time, usually between 12 and 18 months. After that, the leftover balance will be subject to the card’s go-to purchase APR.)

The IRS outlines on its website how you can go about paying taxes with a credit card or debit card, but keep in mind that there will be an additional fee — which could be quite substantial, depending on how much you owe — to do so.

Remember, back taxes can cause all types of financial problems — including damage to your credit scores — so it’s important to be proactive about paying Uncle Sam. However, whatever option you decide to take, be sure to research all the options before jumping in to really understand which one is best for your financial situation.

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