Paying Your Tax Bill with a Credit Card

February 09, 2009

By MoneyRates Team | Money Rates Columnist

This tax year may see more taxpayers than ever facing a tax bill they cannot pay. For many facing the April 15 deadline working with the IRS may seem the only option they have. However, entering a negotiation with the IRS on a payment schedule can be time consuming and costly. The IRS charges interest on late payments and additional charges for failure to file or failing to pay on time. Even entering a payment plan requires a $52 fee and required direct debit of your paycheck. Contacting one of the late-night infomercial tax negotiating companies is not highly recommended either.

A viable option which may make sense for taxpayers is to use a payment processing service like Official Payments Corporation (officialpayments.com) or Link2Gov Corporation (http://www.pay1040.com/). Both companoes will process your tax payment using your personal credit card. In addition, both companies are approved by the IRS who includes information on their website at IRS.gov about the process of paying your tax bill using a credit card. The companies charge a 2.49% processing fee based on the amount of your tax bill.

The key strategy to paying your tax bill with a credit card is to pick the right card. When using a service provider, your tax payment plus the processing fee will end up on your credit card statements as a purchase. A Cash-Back Rewards Card can greatly help by rewarding back to you between 1% and 5% of your "purchase". Obviously if you can find a card that pays back more than the 2.49% processing fee, then you could potentailly profit from the transaction. Most cards limit the cash-back to 1% or 2%, so the other crucial element of finding the right credit card is picking a card with an intro-APR of 0.00% on purchases for six months or even twelve months.

The goal is to pay back the credit card charge before interest starts being charged and earn some kind of reward for the tax payment purchase to offset the 2.49% processing fee. It can be done! Check Cardratings.com for the latest credit card deals and rates.

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