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Can you pay your taxes with credit card?
- Posted on August 29, 2020
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By Karan Kapoor
Can we pay taxes with our credit cards? Yes, here we will evaluate the merits and demerits of paying our taxes with a credit card.
In a better year, you should have had enough of your salary reserved to meet your tax commitments for the year. Alas, this may not always be the case. You may not have been up to date with your exemptions, you earned more than you expected or another change to your financial situation left you owing taxes.
If you can not afford your tax bill in cash directly, you have got a few ways to take care of the tax bill.
Before knowing that you can pay your tax with your credit card, you should first know the advantages and disadvantages
Advantages
You can use a credit card with a credit limit large enough to pay off your taxes. Instead, depending on your credit card conditions, you have the option to max out your credit card over time. Owing to the credit card issuer sometimes it sounds a bit less frustrating than owing to revenue officers.
Here are a few advantages of paying your credit card payments.
You can get rewards on hand by using credit card perks. Making the best of the benefits provided by your credit card by adding your taxes on your credit card. Be alert, some loyalty credit cards have purchase limits and minimum costs before they start paying you.
You will have some more time to pay your tax bill, without bringing in additional forms. Putting your credit card taxes allows you to continue paying your tax bill beyond the deadline.
You might be able to avoid interest if you can enjoy the benefits of a credit card with a long 0 % payment introductory rate and pay off the credit card balance before the introductory period ends. That is an "if" so be careful.
Disadvantages
There are some major limitations to paying your taxes by credit card, including the opportunity to collect bonuses and have more days to take care of your tax duty.
You will pay interest on the tax which you owe. The longer you wait to pay your credit card balance, the more interest-bearing you will end up paying. Using a credit card with low-interest rates or one with a discounted interest rate can reduce the number of annual payments you spend on the balance.
Convenience costs apply. The IRS pays a convenience fee, which is 2.49 % on your tax bill, as you pay your taxes by credit card. For example, if you owe $1,000 the convenience fee is close to $25. It would save $250 if you add a $10,000 tax bill on your credit card. For example, the bigger the convenience rate would be, the more you owe in income. (Every country has different rates, so it depends)
You can not get your debt bankrupted. Income tax is one of the categories of debt that you (along with child care and alimony) can not default. But, should you have financial problems further down the line, be mindful that bankruptcy does not erase tax-incurring credit card debt.
Your card issuer may think that you are in danger. If you have to pay your income taxes using your credit card, your card issuer may see it as a sign that you are having financial trouble. Why would you use your credit card, after all, if you could afford to pay taxes? Because of the elevated risk, your card issuer may hike your interest rate, lower your credit limit or even cancel your credit cards
What is the right choice?
Paying by credit card will allow you the option to pay for a period of time, which can be treated as any other payment by credit card. Your balance is subject to your deal with your credit card. Your loan provider will get to control interest rates and penalties. Early fees will surface on your credit report which will impact your credit score, which may impact your potential ability to receive credit cards and loans.
Further Readings...
