Think twice before paying your taxes with a credit card or you could find yourself even more out of pocket. Any potential rewards earned through charging what you owe Uncle Sam are likely to get eaten up, reports USA Today
Unlike retailers, the Internal Revenue Service does not absorb the processing fee of a credit card charge ─ which can be anything from 1.89 percent to 3.93 percent of the payment.
So while credit card companies have been beefing up rewards programs in recent months, using plastic to pay the IRS could cost more than the value of anything you will earn back from using the card.
Additionally, charging the IRS payment could have a negative affect on your credit rating and the interest on the credit card payment may exceed the value of any rewards if the balance is not paid off before the due date, USA Today said.
Jeffrey Weber, founder of SmartBalanceTransfers.com, noted some situations in which paying by credit card could be advantageous — such as earning air miles and using them on upgrades.
Another reason to pay by plastic, he said, is if the amount of the IRS payment meets the spending level required of a new credit card account that offers lucrative rewards to those who sign up and agree to charge a certain amount in the first few months.
Those who are thinking about using credit due to lack of money — and not because they are chasing rewards — may do better to arrange an installment payment plan with the IRS, said USA Today. It costs $105 to organize and interest is due on the unpaid balance, but the rate is 3 percent ─ less than the rate for most credit cards.
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