March 17, 2010
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Paying taxes with cc could be a problem, Pt.1
Watch out for the hoops.The concept of paying the Internal Revenue Service (IRS) for one’s Federal Income Taxes with a credit card sounds new, but it has actually been available during recent years. Of course, the service has typically been available to taxpayers who have missed paying taxes or have encountered special circumstances that have incurred additional penalties. With April 15th, the tax deadline, fast approaching, Americans can expect to be hounded by new ads and marketing strategies that will encourage them to use their credit card to pay their tax liabilities. While the IRS encourages the use of credit card, financial experts say the decision to do so is a poor one.
No doubt paying by credit card is fast and easy and can be completed on the phone or online. However, the process only serves to delay the inevitable and creates additional costs. What most individuals don’t know is that credit card payment for taxes is not made directly to the IRS, but rather is made to a third party contractor. Therefore, taxpayers who utilize this service would not only pay their taxes, but would pay an additional card processing fee which can range between 1.94 percent and 3.93 percent. Topping that off is the fee that the third-party charges which is typically over two percent of the amount of the payment.
Another key factor is the interest an individual would accumulate on credit card balances. During the recent influx of interest rates, lenders have positioned themselves as being unreliable and abusive. Although recent legislation limits lenders’ abilities in raising interest rates, it is very likely that lenders will again raise interest rates, The Federal Reserve has reviewed the reform bill and has put into motion rules that are aimed at filling in the gaps and closing loopholes that might tempt lenders in raising interest rates and instituting more fees. So if not a card, what then? Read part two to learn more on choices.