If there are two things in the world people dislike more than most anything, it’s taxes and credit card debt. On that note, don’t pay your taxes with your credit card. It should be that simple, but for many it’s anything but. Ideally, we would all figure out precisely how much money we owe the federal government each and every year and pay it throughout the year, breaking even when we file our yearly federal income tax return. Since we don’t live in that amazing fantasy land, though, many of us find ourselves writing big, fat checks to the IRS in the middle of April (because I know you, like me, aren’t trying to pay the government a minute sooner than absolutely necessary, right?). Except for some; some pay their income taxes with their credit card. It’s not a good idea; and we will tell you why.
See You Later Excellent Credit
If you owe a lot of money to the IRS, you’re going to take a credit hit. Let’s say you add $25,000 to your card to pay your taxes this year. That just took up a huge amount of your available credit, which makes it look as if you owe a lot more than you are allowed to have, and it’s bad for your score. Next thing you know, you’ll be paying higher interest rates and not able to purchase the car or home you really want.
It’s Expensive Upfront
The most important reason not to use your credit card to pay your taxes this year – or any year – is the sheer expense of doing it. The IRS decided that all credit card taxpayers should pay an additional fee that’s anywhere between 1.87% and 2.25% of the total amount you already owe. If you owe $300,000 and the IRS charges you a 2.25% fee, that’s an additional $6,750.
Now we have to decide whether or not you can afford to pay your taxes off before you accrue any interest charges. If you cannot, there are those fees to pay. The longer that balance sits on your card, the more you pay. Do you really want the government costing you more money than you already paid them? No, you do not.
Photo by Getty Images