Should You Pay Off Your Taxes With a Credit Card?
If you are not deducting enough from each paycheck or own a business, you will find yourself owing income tax this year. No one looks forward to paying extra money to Uncle Sam and sometimes there isn’t even enough money to pay it back! The thought of using your credit card to pay extra taxes might seem like a good one, but it really isn’t.
Whether you owe income tax at the state or federal level, they typically know that the amount owed might be over what you have at the present time. They allow for this, in the form of an extension. This allows you, the tax payer, to set up a payment plan that will eventually take care of the full amount.
This doesn’t come without a price. With having a little extra time to pay off your taxes, you will now also be paying interest on top of it. Luckily, the government has a fairly low interest rate. The federal government’s rate on unpaid taxes is at seven percent. That is the short-term rate and three percent. Depending on your state, that rate may vary. It is best to just check with your local state office.
Compare those rates to the interest rates on your credit card. The average credit card has an interest rate from eleven to twenty-one percent. Now if you have a tax amount that you cannot pay, odds are you also have a credit card with a high interest rate. If you pay off your debt to the government with this card then you will be acquiring interest on this high sum, which you typically use towards smaller purchases. Depending on how high your interest rate is on the credit card, you will end up paying a lot more towards your taxes.
The best solution is to work with the government and take advantage of getting an extension. The lower interest rate is the best option when compared to that of a higher rate credit card. Of course you would want to make your payments on time to the government, but if you are unable to make a payment then you need to contact them. They will give you all of the necessary contact info and will work with you on a payment plan you can financially agree to.
All that is required is showing proof of your monthly income. Just remember, you do not want to be late on your taxes. The government will work with you; just make sure you take this seriously. And really consider the interest rates on your credit card before making the final decision if you are going to pay off your taxes with them!
