How Should You Pay Your Taxes?

So you haven’t done your taxes yet — yeah, you and several million other Americans. It’s not a huge deal, but now that it’s April, let’s talk about your options for paying the bill. Of course, you’d rather not be on the paying end this year, but just in case you don’t get a refund like you’re expecting, you need to know your options for paying the IRS.

If you’re among the 20% to 25% of Americans who wait to file their taxes until the two weeks before the deadline, this is for you.

1. Check or Money Order

If you’re going the paper-and-post route, you’ll probably send a check. Remember you have to postmark the payment by April 15, and include form 1040-V, which is a payment voucher for the check or money order.

Something to keep in mind when filing the “old-fashioned” way: If you’re down to the wire and rushing to finish your taxes, be very careful that you don’t make mistakes or miss anything. Software helps you catch errors, but if you’re writing everything out yourself, you need to double-check that you haven’t made mistakes.

2. Credit Card

You can pay your taxes online or over the phone using a credit card, but this option comes at a price. The IRS does not directly process credit card payments, so it works with a few authorized processors to offer this option to taxpayers. Those processor charge a fee: between 1.88% and 2.35% of what you’re paying the IRS.

If you will have trouble meeting your tax obligation in full and you have a 0% financing period on your credit card, this form of payment could work best for you (as long as you pay the balance before the promotional financing expires). Otherwise, an IRS payment plan could be cheaper.

Some credit cards have good enough rewards that paying the fee is worth it — to figure out if you’ll benefit from this strategy will require a bit of math on your part.

3. Debit Card

If you’re going for the convenience of plastic, you probably want to go with a debit card over a credit card. Instead of a percentage, the payment fee is a flat $2 or $3, which is a better deal than using a credit card if you owe more than about $100.

4. Direct Transfer

This option is free, unless your bank tacks fees on for electronic transfers. You’ll provide your bank account number and routing number online or over the phone, and the money is withdrawn directly.

5. Payment Plan

If you can’t meet your tax obligation, enter an installment agreement with the IRS. The most important thing to know here is you MUST pay, otherwise you will be fined by the IRS, and you could even end up with a very damaging tax lien on your credit report. Be proactive about any tax issues you encounter to avoid unnecessary damage to your finances or your credit. If you already have a tax lien on your credit history, you can see the impact it’s having on your credit by checking two of your scores for free on Credit.com.