Even though Tax Day has come and passed, millions of Americans have yet to pay their taxes for 2011. The IRS is fairly lenient in allowing you to pay your taxes late (1% penalty for each month it is late) but it is certainly not a good habit to adopt. There can be serious downsides to paying your taxes with a credit card but if you do it the right way, you can actually benefit in the end. Here are a few tidbits on proceeding to pay your tax balance with a credit card and what to do to avoid any negative aspects of the process.
Advantages to Using a Credit Card
One of the most recognizable benefits to paying your tax bill with a credit card is the avoidance of having to fill out extra forms to extend your tax payment. While it is possible to file an extension, it is also time consuming and paying with a credit card may be a better alternative for you in this instance.
You can also earn rewards when you make your tax payment with a rewards credit card. This can help cancel out any negative effects or penalties accrued from paying late or by paying with a credit card. You will want to check with your card company to see if rewards are extended to payments made to the IRS via your credit card as all rewards cards are different.
Disadvantages to Using a Credit Card
Obviously, any debt charged to a credit card will accrue interest, and in this case, at a faster rate than with the IRS. If you currently have a 0% APR credit card and everything checks out with the card issuer, then you can circumvent this issue. Most people do not have 0% APR, however, so the best option in that case is a low-interest credit card.
There are also convenience fees for any payment made to the IRS via credit card. Since they use third-party processors, these institutions will slap on a 1-3% charge depending on the particular company. You can check the IRS' website for the specific fees.
Your card may also be subject to penalties if you do not check with the issuer first. Some companies will downgrade your credit limit, revoke the card or charge you a higher interest rate if you use it to pay your taxes. Always check beforehand with the card company to make sure you can pay the IRS without risking your general creditworthiness.