Paying Your Taxes With a Credit Card May Cost You

By , dealnews Copy Editor

Have you got a plan to pay back Uncle Sam? With tax season in full force and the April 15 deadline inching closer and closer, many folks have already learned that they owe both federal and state governments a couple of bucks. But what's the best way to pay the piper what you owe? You could pay from your checking account in one fell swoop; you could opt for an installment-payment plan; or, you could charge it — and maybe earn some frequent flyer miles in the process! But, while the latter option may sound appealing, you might want to think twice before choosing that route.

Paying with plastic is a modern convenience, and for many, a less painful way to pay the man. However, a recent SmartMoney article brings to light the cost of this convenience. Most consumers are unaware of the merchant fees that credit card companies charge retailers to use their services. In this instance, the IRS is the merchant, and it's not willing to pay a fee so that taxpayers can conveniently charge their back taxes. But those credit card companies aren't about to shrug off anywhere from 1.89% to 2.35% revenue per transaction! Oh, no! Traditional merchant fees are thus transferred to the cardholder and become a "convenience" charge.

SmartMoney argues that while a $9.40 convenience charge in paying off a $400 tax bill on time is relatively fair, putting an additional $117.50 on your credit card to settle a $5,000 bill should have you thinking otherwise. What's more, unless your credit card balance is paid off within one billing statement, you can also anticipate interest rate charges of up to 19%.

Common sense leads us to believe that it's best to pay your tab directly from your checking account and all at once to get it over with, like ripping off a Band-aid. But if you can't shell out the entire sum of what you owe, SmartMoney suggests checking with the IRS itself which offers interest rates on an installment-payment plan (via File IRS Form 9465) at 0.5% per month after an initial $52 setup fee. And there's no harm in talking to your credit union (or, say, Uncle Richard) and asking for a short-term loan to pay back Uncle Sam. [SmartMoney]

Front page photo credit: Cash the Checks
Top page photo credit: Credit Cards

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For some reason no article ever mentions that the federal government offers its own electronic payment system at ttps://[

You have to set up and account and wait for validation via physical mail, so it isn't something you can do at the last minute, but once you have it running, you can pay federal income and estimated taxes electronically via checking account debit.