This post should come with a warning. That warning is don’t attempt to do this if you only have access to high interest credit cards and are already carrying a balance on those cards.
The IRS doesn’t charge a fee, the payment processor you use will charge a flat fee (starting at $2) for using a debit card. For credit card payments, these processors will charge a fee that’s based on a percentage of the tax payment (as low as 1.96%). While this fee tacks on more to your tax bill, it can be offset by credit card rewards
Rather than going on another payment plan with the IRS (which includes not just a monthly interest rate but also set-up fees if you do a long-term plan, ranging from $31 to $225), using a credit card will cost me less.
If you’re thinking about opening up a 0% APR credit card to pay your taxes, make sure you make at least the minimum monthly payment, otherwise, you might lose your 0% APR offer plus incur late fees. Also, make sure you can pay off the balance before the promotional period ends, or else you’ll end up with quite a lot of high-interest debt.
One of the biggest selling points of putting my tax bill on a credit card is the excitement of all the rewards you’ll rack up. Some cards even offer a cash bonus of $200 after spending a certain amount within the first few months. That cash-back bonus can help offset the tax bill by a little or cancel out the payment processing fee.
Paying your tax bill with a credit card lets you set a firm budget and payment plan for myself to split up the payments over the course of your promotional 0% APR rate .
While putting the tax liability on my credit card comes with a credit card processing fee, it is a cost to consider to be able to hold onto your cash and avoid liquidity issues so that you can be prepared in case of a pop-up emergency or life challenge (like a job loss or a sudden move).
Consider your entire financial portfolio, 2021 plans, and upcoming expenses when making a decision on how to pay off your tax liability.
The benefit of having peace of mind in having proof that your payment is received isn’t something everyone will care about. If you make a tax payment with a check and it is lost, you’ll be on the hook for more interest. But if you use a credit card, your payment will be documented and you’ll have the ability to initiate a dispute if there are any issues.
My Fiscal Office LLC
77 Bleecker Street
New York, NY 10012