With less than a week remaining before the filing deadline for 2011, taxpayers who have yet to file are running out of time. Many of these filers may be waiting until the last minute because they owe the IRS and do not have the money to pay. In an attempt to avoid aggressive collection actions and additional fees and penalties, some taxpayers may turn toward their credit card for some fast cash. Before doing so, compare the benefits and drawbacks which may result.
The first and main benefit of paying your tax bill with a credit card would be avoiding penalties from the IRS. When taxes are owed to the government, interest and additional fees are applied as soon as the bill is delinquent. Requesting an extension will give you more time to file your return, however it does nothing to extend the deadline for paying your taxes. For this reason, many choose to pay the bill on time with their credit card to avoid a larger balance. If you use a rewards card, you may come out ahead if you pay your credit card balance in full. Read the terms and conditions associated with the rewards program as some limit the rewards earned from IRS tax payments.
If you are paying your tax bill with credit because you have no other resources, you could be trading one problem for another. Unless you are able to pay the balance in full, you are still facing the same debt which will accrue interest charged by your credit card company. Depending on the interest rates and other terms of your account, paying by credit card could end up costing you more than a payment plan through the IRS. In addition, any tax debt paid on your credit card will be ineligible for discharge in bankruptcy court, should you face a financial hardship in the future.
If you have a tax bill which you cannot pay you must carefully consider all of your options before making a final decision. Understand the terms and conditions applied to your credit card account to determine if paying your taxes by credit is the most affordable option. Dealing with the IRS can be intimidating, however making the wrong decision regarding your tax bill can cost you hundreds if not thousands of dollars in the long run. Learn your options, understand your risks and then you can make an educated decision.