Paying Uncle Sam With Plastic
Credit cards becoming more popular as a tax payment method
For Immediate Release: March 27, 2003
ROCKVILLE, Md. — As payment options go, credit cards are a popular way to pay for goods and services. They are also gaining popularity as a way to pay taxes. According to the Internal Revenue Service, the amount of people charging their taxes was up 9 percent in 2002, to 313,385 people.
"Charging your taxes on your credit cards can seem like a convenient way to get the tax-man off your back, but make sure you explore all of your payment options before pulling out the plastic," said Steve Rhode, president and co-founder of Myvesta, a nonprofit consumer education organization. "If you're not diligent about paying that debt off quickly, it could cost you a lot more in the long run."
According to Rhode, if an individual charges a tax bill of $3,000 and only makes the minimum payment on their credit card, it will take over 37 years to pay off and cost an additional $7,930 in interest. That calculation assumes an 18 percent interest rate and a 2 percent monthly minimum payment.
But in some cases using a credit card can be a worthwhile option to consider. "If you don't think that you'll be able to stick to a payment plan set up by the IRS, using a credit card can make more sense," Rhode said. "Credit card companies do not have as much power in collecting debts as the IRS does, so if you run into trouble it's better to owe a credit card company."
If you are considering using a credit card to pay your taxes, keep in mind that you will have to use a third party payment company, the IRS does not accept credit cards directly. There are two companies offering credit card processing for federal tax returns, each one imposes a convenience fee of 2.49 percent on each transaction. Visit the IRS's Web site at www.IRS.gov for more information on credit card payments.
Credit cards aren't the only method of paying taxes when you can't afford the full bill. For a comprehensive look at other options, read the Myvesta publication "How to Deal with the IRS If You Can't Pay Your Taxes." It can be downloaded online from Myvesta.org.
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MyvestaSM is dedicated to helping people create healthy financial lives. The organization provides a wide range of materials to inspire and inform people so that they can break down their barriers to financial and personal success. For more information visit Myvesta.org online.
