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Pay Your Taxes With Plastic? Beware.

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Tax_DaveDugdale_CCFlickrIf you’re thinking about paying you taxes with a credit card, hold on a second. Yes, charging your taxes might make sense. Right now, at the height of the tax season, banks are boosting the rewards and frequent flier miles they give to people with good credit, as we reported recently.

But a little-known fee makes paying your taxes with plastic really expensive. That’s because the IRS contracts with three companies to handle credit card payments. The government doesn’t pay those companies for the service.

Which means you, the taxpayer, pays. Depending on which company you call and which card you use, you will pay between 1.9% and 2.35% for the convenience of using your credit card. The companies and their rates are listed here.

For a tax bill of $1,000, you could pay as much as $23.50 extra. That’s in addition to the interest rate charged by your credit card.

Which means you shouldn’t take the IRS up on the “convenience” of paying with plastic “unless you’re really desperate,” says Beverly Harzog, Credit.com’s credit card expert. “It would have to be a real emergency” for a credit card payment to make sense, she says, as in there’s no other way for you to pay your taxes.

You do get to deduct the convenience fee from your tax bill. Even so, the fee for paying taxes by credit card probably outweighs any benefit you may receive in the form of points.

Fees apply to debit card payments, too. Most arrangements apply a flat fee of just under $4. One of the three service providers, however, Official Payments Corporation, does have an option that charges a convenience fee for debit card payments equal to 1.9% of your tax bill. That may be OK for small tax debts. But if you owe a lot of money, that could get expensive quickly.

[Related: New IRS Rules Could Impact Credit Scores]

Image: Dave Dugdale, Rentvine.com

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  • Judy Tagert

    I have never read where you can deduct the fee from taxes paid using a credit card..is that still in effect for 2012 taxes? Can you direct me to where this is stated in the IRS rules?

    • dan

      ah no.

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