With just a little over a month before the dreaded tax day rolls around, it got me to thinking about paying my own taxes. You see, I am self-employed and have to pay in quarterly estimated taxes throughout the year, but I think that I might end up having to pay a little more on tax day due to making a bit more money than expected.
When you own on your taxes, you have several options when it comes time to pay the amount due. You can send in a personal check or money order to cover the balance. You can have the amount due electronically deducted from your checking or savings account. Or, you can pay the amount by credit card.
The catch is that only one of those options incurs an extra fee and that is paying by credit card.
The fee amount for paying by credit card varies as it depends on which of the approved processors that you use, but it is somewhere between 2% and 4% of the total balance paid to the IRS.
Right now you might be thinking – why would I ever choose to pay by credit card with the extra fee?
I’ll give you a few reasons why you might need to do this.
1. You do not want to be in debt to the IRS.
If you cannot afford to pay the taxes due out of your checking or savings account, then you will be in debt to the IRS. And the IRS charges plenty of late fees and penalties. Plus, they are the IRS and who wants to be in debt to them?
2. You earn rewards points/miles.
If you have a credit card that earns you cash back, miles or points, then you might actually come out ahead by paying with your credit card. You have to admit that it would be pretty cool to earn a free hotel stay just by paying your taxes. Of course, you’d want to pay off the balance immediately or it would not be a good deal.
3. You want just one debt payment.
Let’s say that all of your other debt is on a single credit card – and you have enough available credit to hold your taxes that are due to the IRS. Well, charging them to that card will keep all of your debt in the same place so that you only have one debt payment.
An important thing to keep in mind when considering using a credit card to pay the IRS is your interest rate on that card. If it is a high interest rate, and you cannot afford to pay if off, then paying the IRS late fee and penalty fee just might be the cheaper and smarter financial move for you.