NEW YORK (Credit.com) —While the majority of Americans will expect a tax refund this year, there are still a sizable fraction of us who will have to scrounge up their savings to pay Uncle Sam what they owe.
And while some are vaguely aware that there are ways to pay taxes with their credit cards, few really understand the benefits and drawbacks of these options.
Here are the basics.
How to pay taxes with a credit card
The IRS is happy to receive payment in the form of a check, but they do not directly accept credit cards. Instead, they have authorized a handful of private companies to accept payment on their behalf. And while this service is convenient, it comes at a cost. Authorized processors charge a fee of between 1.88% and 2.35% of the amount remitted to the IRS. In addition, some state and local governments will also accept taxes paid with a credit card.
To choose from an authorized payment processor, visit the IRS credit card payment site.
In addition to credit cards, taxpayers can also use their debit cards to remit payment to the IRS through the same authorized payment processors. And rather than being charged a percentage of their payment, payments using a debit card only incur a flat fee of about $2- $3 per payment. Therefore, taxpayers who are only using a payment processor for convenience alone will want to use a debit card instead of a credit card, so long as their payment is above approximately $100.
When it makes sense to use a credit card
With a credit card fee of at least 1.88%, most taxpayers will save money by simply mailing a check to the IRS. But there are some rare situations where payments using a credit card can make sense. First, those who have a card with a 0% APR promotional financing offer can avoid interest for as long as 18 months. This may be the best option for cardholders who are unable to pay their tax bill immediately.