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Many taxpayers will not have the good news of filing their taxes this year – so much so that H & R Block employees have to play therapists with their clients.
For more than 30 million taxpayers who might actually owe money to the Internal Revenue Service this year, a credit card is probably not the best solution to pay their tax bill.
The IRS has three card processors approved to process debit or credit card payments. All three charge a fee for these transactions. For credit card transactions, fees range from 1.87% to 1.99%, with a minimum charge of $ 2.50. If consumers pay their taxes due by check, there is no charge.
"In most cases, this will erase the value of the rewards you would get," said Ted Rossman, an industry analyst at CreditCards.com.
And this before taking into account the speed with which the interest can accumulate if a consumer postpones his fiscal balance.
Another important point: not all tax forms are eligible for card payments. Check this IRS page for more information.
Look also: More and more Americans are taking longer to pay off their credit card debts
Here's what you should consider if you're looking for rewards
To be sure, cardholders could come out ahead of the rewards point of view with some cards. In particular, the Citi Double Cash
C + 0.77%
The card offers 2% on all purchases, which includes tax payments, which means that cardholders would at least be profitable from the point of view of rewards for IRS card processing fees. This would also be the case with Capital One's Capital One Spark Miles for Business program.
COF + 0.81%
and the American Express Blue Business Plus Credit Card
AXP, + 1.08%
Putting plastic on your tax bill can also help if you have recently opened a new credit card and are trying to cover a certain amount of expenses to unlock a launch offer. For example, as noted by The Guy's Travel and Finance website, Chase's Ink Business Preferred Credit Card
JPM, + 0.07%
offers new cardholders 80,000 reward points after spending $ 5,000 within three months of opening their account. Given the magnitude of the hurdle, a significant expense such as a tax bill would go a long way towards achieving this goal.
In addition, travel cards such as the JetBlue Plus card
JBLU, + 1.38%
or the Hilton Honors Ascend Card
HLT, + 0.82%
American Express offers special rewards when consumers reach a spending threshold – Mosaic's elite status in the case of the first card and a free weekend night with the Hilton card.
That said, the benefits of rewards disappear if the cardholder does not pay the full balance of his taxes. According to CreditCards.com, credit card interest rates are at an all-time high of 17.64% on average.
For example, if a consumer pays $ 4,000 in taxes with a credit card bearing a 15.59% interest and then settles that balance for 12 months, he or she will charge more than $ 80 for the IRS credit card fees, plus $ 350 in interest.
In other words, if you use your tax payment as a rewards-generating strategy, it's important to have enough money in the bank to cover the bill.
Read more: Consumers asked for the lowest number of credit inquiries since 2003 – why this raises concerns
Here's what you should do if you can not afford to pay your tax bill.
Some consumers will naturally want to use their credit card to pay their taxes over time if they do not have enough money in the bank at the time of reporting.
Individuals occupying this position may apply for a no-cost reimbursement plan directly to the IRS by completing a 9465 form with the return (April 15th or October 15th if a taxpayer requests an extension.) Consumers may propose their own terms of payment and offer a refund. period of 36 months or less. Generally, these applications are automatically approved if the taxpayer owes less than $ 10,000.
If you choose this route, you will have to pay a $ 31 usage fee. Interest of 0.25% every month will also be charged to your outstanding balance. If taxpayers do so, they can not claim installments for their taxes the following year, unless their bill has been paid in full.
The only other possible solution, aside from the IRS payment plan, to the extent that the interest rate applied is much lower than that of commercial lenders, is to place its bill on a credit card with a launch period of 0% interest. "If you're disciplined about your payments, the 0% credit card is your best choice," Rossman said.
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