Paying Taxes with Credit Cards: Pros and Cons

June 17, 2008

Nothing is certain but death and taxes. This proverb is pretty old and very popular in America. And it is a rather questionable issue - what Americans hate more. Tax time can, probably, be called an antipode to Christmas time so much loved by Americans. It is really unpleasant to give your honest penny earned. It feels like you are being robbed.

Of course, we realize that the tax money goes to good causes. But still it is not easy to give a part of your income with a smile on your face thinking of some nice park-to-be or a smooth new future highway. But now you can get rewarded for paying taxes. You can apply for a credit card with rewards for paying taxes, gilding the pill thus.

Discover and American Express issue special credit card deals for tax payers. Now paying tax money to local and state government with a credit card you can get rewards points, airline miles and even cash back. Just like for a regular shopping spree.

American Express credit cards grant you membership rewards points nearly for every tax dollar you pay with the card. Visa United Mileage from Chase Bank enables you to earn additional reward points and miles when using the card for paying taxes. However, there are some downsides to making tax payments with credit cards.

The convenience fee is the major factor that makes card holders think twice before paying taxes with their plastics. The fee makes up 2.5% of the total amount of the tax you pay.

But you can avoid paying a convenience fee. If you resort to Link2Gov services, you will be charged just $2.95 for a tax payment, regardless of the sum. This rate is flat. You can pay either with a credit or debit card with MasterCard or Visa logo.

The tax evasion rate has declined with the launch of this comparatively new option of paying taxes with credit and debit cards. It has been nearly 10 years, since this system of tax collection through plastics was introduced. It is expected that 2008 will become the turning point for businesses. This year tax authorities plan to allow businesses make their tax payments with credit cards.

Paying taxes with credit and debit cards is actually more convenient that doing all that paper work, filling out numerous blanks and sending checks. Besides, collecting a couple hundred extra points or miles on your cash back card deal or some other rewards plastic is really nice. However, debit cards will not give you any rewards for tax payments.

What you should keep in mind when making the decision about the way you want to pay the tax? Remember that if you make tax payments with a credit card, you extend your revolving balance on the plastic, accruing additional interest thus. If you have a low rate credit card, it's fine. Or once you pay taxes during your 0% introductory period. But if the APR is pretty high, you should better think once again.