Hi Everyone,
I’m sharing a MoneyGeek article I was featured in a few months ago.
Full disclosure, please understand the implications before making this decision of whether to use your credit card to pay your tax bill and click the link below to see how another expert used it to his benefit.
Kaysian Gordon
Founder and Wealth Advisor at Kaysi Gordon Financial PlanningBACK TO ALL EXPERTS
What are the benefits of paying taxes with a credit card?
The benefit of paying taxes with a credit card is that you can use your card and buy time to pay it off. The costs range from 1.82% to 1.98% of your tax bill [to the bill service you use]. Depending on the card you use, you may be eligible for points. It’s important to consider the rewards versus the risks of using a credit card. When you use your credit card, additional costs are associated with paying the bill, depending on how long you take to pay it off.
In what ways does paying with a credit card affect your credit score?
Using your card to pay a tax bill can negatively and positively impact your score over the long run. It can be negative in the short term because if you put too high a balance on your credit card, your score can drop based on an increased percentage of usage. This applies to any large purchase in general. On the contrary, if you use your card and then pay more than the minimum payments and pay on time, this can help improve your score as you are showing that you can use credit responsibly. This also applies to using your card and payment history in general.
What are the potential risks or downsides to paying taxes with a credit card?
The potential downsides of using a card are those already mentioned. What are the potential risks vs. potential rewards? If you have cash to pay the bill, paying it using your debit or checking account may make sense, as you will not incur a fee. If you cannot do so, make sure you have a strategy for how you will pay the credit card back. It’s important to consider whether the number of points you earn will offset any costs that you will ultimately be paying.
Paying an additional 1.82% to 1.98% right off the bat, and if you are carrying the balance over on a card that charges between 15% and 29% on an annual basis, it may not be in your best interest to put the bill on the card as it will become much more expensive over time. Again, the key is to have a payoff strategy and understand what benefits you will get vs. what it will ultimately cost you over the long run.
You might also be able to get a payment plan directly with the IRS, but make sure you understand how much it will cost you based on how long the bill has been outstanding.