Best Tax Advice: Don’t Pay With Plastic

What's Hot


2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

While credit card companies tout the benefits of paying your taxes with a credit card, this is probably the worst way to pay. Here are some better ideas.

This post comes from partner site LowCards.com

April 15 is less than one month away and hearts start pounding a little faster as thoughts turn to taxes. This is also the time that credit card issuers encourage customers to use their cards as a convenient way to pay their tax bill.

It may be convenient, but it’s certainly not free.

Even the IRS promotes the benefits of paying taxes with a credit card. The IRS website says that payment with a credit card is “convenient, safe and secure” and reminds taxpayers that if they are enrolled in a rewards program, they can earn miles, points, and cash back.

Credit card payments to the IRS are processed by third-party providers. These companies charge a processing fee, which averages
2.35 percent but can be as high as 3.93 percent (charged by FileYourTaxes.com).

If your tax bill is $6,000, a processing fee of 2.35 percent will cost $141, which is rolled into your credit card’s balance. If you don’t pay off your card’s balance in its entirety at the end of the month, you will begin to incur interest rate charges on the $6,141 balance, which, depending on the account’s APR, can be an extremely costly way to pay your taxes.

If you have no other available options, here are a few tips for paying your taxes with a credit card:

  • Find out your credit limit before you charge your taxes. Debt utilization is a major factor in credit scores. If you use too much of your available credit, you can hurt your credit score. “If you are maxing out your credit cards, you are considered a high risk and could pay the highest interest rates,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “If charging your tax payment pushes you significantly closer to your credit limit, expect a drop in your credit score.”
  • Do not write your credit card number on your tax return.
  • Make sure your payment is treated as a purchase, not a cash advance. The cash advance APR can be 25 percent, and the cash advance fee varies from 3-5 percent, depending on the issuer.

Using reward points to pay taxes

Using a reward card to pay taxes is not an easy way to earn reward points to pay for your summer vacation. The average reward is 1 percent of the purchase, or 1 cent per dollar spent. This is much less than the 2.35 percent processing fee. You will save money writing a check for the taxes and paying cash for your vacation.

American Express allows you to use rewards points toward your tax payment and convenience fee on officialpayment.com and pay1040.com. However, to pay off $5,000 in taxes, a card member would have to charge $1 million – it takes 200 points to pay off $1 in taxes.

Other payment options

If you can’t afford to pay your taxes, look for other options:

  • An installment plan with the IRS is one possibility.
  • Your bank or credit union may also give you a personal loan with a lower interest rate than your credit card’s APR.
  • You can also pay with a debit card, and the fee is much cheaper. For example, you will be charged a flat fee of $3.89 when you use your Visa debit card (pay1040.com).

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!

💰🗣📰

Read Next: Lookin’ Good! How to Get a Killer Deal on Eyeglasses

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,935 more deals!