With all the necessary expenses that you need to cover within a particular calendar year, it would be somewhat of a miracle to have budgeted for your tax obligations. More often than not, this seems to be the cited expenditure that most taxpayers conveniently forget to set aside some funds for when the season comes around. Don’t be caught trying to empty out your pockets when this inevitable bill comes due.
Ideally, in a perfect setup, after all the amounts have been withheld from your paycheck, there should be enough left to cover your taxes. But, this may not be the case especially if other pressing and urgent matters take precedence. There may be some huge tuition amount that needs to be paid, or an emergency medical expenses, that just happened out of the blue. Fear not, there are some options available for you to satisfy pending tax obligations.
Let’s try to review some possible scenarios wherein you are unable to pay in a timely fashion. Some examples may be:
- The IRS accepts late payments. However, there will be a penalty incurred. This monthly late fee is usually pegged at one percent of whatever is owed. So, if the amount owed is a thousand dollars, the late fee charged will be ten dollars. Don’t let this amount increase because as your debt grows so will the imposed penalties follow accordingly.
- The IRS is open for payment plan for you to settle your tax debt. There probably would be a one-time fee charged amounting to about $195. Monthly interest will also be part of what’s due.
- The IRS also considers payments for taxes through a credit card. With this option, the terms and conditions of your credit card agreement come into play. So, consider the advantages and disadvantages at the onset before paying your taxes with your credit card.
What are the benefits of paying your taxes through credit card?
If your credit limit is quite substantial on your credit card, you just might be able to settle your outstanding taxes. With flexible payment terms, which depends on your credit card provider, you have some choices on how to effectively settle this debt. In some sense, owing the issuer of your credit card may feel somewhat less anxious then dealing with the IRS. The following highlight some advantages in using your credit card to address tax payments:
Reward points can be earned.
With a rewards credit card, rewards can be accumulated on your balance. Should this be the case, the benefits can follow when your taxes are placed on the credit card that may be returned to you through some rewards points. Please review what restrictions the credit card may have. This usually focuses on the type of purchases and some minimum charges accumulated before the rewards can be enjoyed.
There may be a longer time period to settle your tax obligation.
Filling out of additional forms may not be required because you are using your credit card. You can go beyond the April 15 filing deadline when you pay your taxes with this option. With the traditional method, the IRS allows filing after April 15, but there are documents that still need some legwork.
Interest charges may be avoided
But this happens if you have a credit card with a long 0% introductory rate on purchases and can pay off the credit card balance before the introductory period ends. You need to scrutinize it thoroughly.
What are the drawbacks of using a credit card for paying taxes?
Gaining some rewards points on your credit card and having more than ample time to pay it off may be a good thing, but beware of some drawbacks that can crop up.
There’s interest to settle on tax owed
When you are not able to pay off your balance in full and this debt grows over time, the interest will incrementally increase as well. The monthly charges can be minimized with a low-interest rate credit card or one that carries a promotional interest rate.
Convenience fees will most probably be charged
The IRS will charge a convenience fee of 2.49% of your tax bill when using the credit card option. For a $1,000 tax bill, the convenience fee may amount to almost $25. The more taxes you owe, the more convenience fee will be charged.
The debt cannot be bankrupted.
One of the types of debt that you can’t bankrupt is income tax. If a personal financial crisis hits, declaring bankruptcy will have no effect on credit card debts accumulated due to taxes.
The credit card provider may tag you as a possible risk.
When you use your credit card to pay for your tax obligations, the credit card provider may tag you as someone who is in financial distress. There shouldn’t be a reason to use your credit card if you are able to fully comply with your tax debt. Interest rates may be raised by the issuer, and your credit card limit may be lowered or canceled altogether.
Go over some assessments of the risks of using a credit card
You’ve only transferred your tax debt to your credit card instead of the IRS. So, you are still subject to any charges incurred on your credit card. Pay this off in a timely manner and you shouldn’t have any problem. Any late payments will go to your credit card report that may adversely affect your credit rating.