Think Before Paying Taxes With a Credit Card

Photo (cc) by hoyasmeg

As long as the government gets paid in full, it’s not picky about the method. Paper, plastic, even cash if you visit a local office. (Don’t mail cash.) It doesn’t matter to Uncle Sam.

It does matter to you, though. Using a credit card means the usual concern of paying it off quickly or paying high interest rates. But because the IRS uses third-party processing companies, you’re also going to pay an extra 1.88 to 2.35 percent. On a payment of $1,000, that means an extra $19 to $24. If you can afford to pay in full, is the credit card’s convenience worth that extra money?

Most debit cards, on the other hand, get charged a flat fee between $3 and $4. (Even if you owe so little that the percentage option is to your advantage, the minimum fees will guarantee you pay that much anyway.) Be careful with MasterCard debit, though: two of the five vendors charge a percentage fee on those just like credit cards.

If you’re going to pay by credit card, keep in mind your credit utilization ratio – if your monthly statements show you’re using more than about 30 percent of your available credit, your credit score’s going to get dinged until you bring that down. You also want to make sure the payment is treated as a purchase and not a cash advance, which can trigger fees and a higher APR rate.

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