Is Paying Taxes with your Credit Card Really Rewarding?
By Lucy Lazarony, CardRatings.com Reporter
Thinking of getting a little something back on this year’s taxes by paying with a rewards card? There are ads seemingly everywhere touting how you can quickly rack up some great rebates by doing so.
But before you jump on the bandwagon, be sure to crunch the numbers first. As tempting as it is to pile on the rewards points and air miles by charging your taxes, it is rarely as rewarding as you might think.
First off, you’ll pay for the ease of paying your taxes by credit card with a 2.49% convenience fee. This fee isn’t charged by the Internal Revenue Service. It’s charged by credit card service providers such as Pay1040.com and Official Payments.
These companies act as intermediaries between taxpayers and the IRS. They validate credit card numbers and expiration dates, obtain the authorization from card issuers and issue confirmation numbers to taxpayers.
They then forward the payment to the IRS. And a tax payment listed as “United States Treasury Tax Payment” is charged to the taxpayer’s credit card account, along with a convenience fee.
Let’s look at some examples:
If you pay a $2,000 tax bill on your favorite cash back rewards credit card, you’d wind up paying a $49.80 convenience fee. Let’s say your card pays you 1% cash rebate for every dollar you spend with the card. By charging your $2,000 tax bill, you’d earn $20 cash back, but that’s more than offset by the $49.80 convenience fee.
Paying an extra $49.80 to earn $20 doesn’t make a lot of sense does it?
And while you may earn about 50 cents cash back on the convenience fee, you’re still shelling out an almost $50 fee for roughly $20.50 in rewards. That’s a difference of $29.30. And that’s not so rewarding, is it?
What about paying your tax bill with your favorite air miles credit card?
Let’s say you have a $3,000 tax bill and you’ll earn one air mile for every dollar you charge on your taxes. Earning those 3,000 air miles might be nice, but you’ll also be charged a $74.70 convenience fee. Are you so desperate for a few thousand air miles that you would be willing to pay an almost $75 fee?
The heftier your tax payment the higher the convenience fee you’ll wind up paying.
If you’ve got a $5,000 tax bill, you’d be charged $124.50 for the convenience of paying your taxes by credit card. Use a cash back card with 1 percent rebate and you’d earn roughly $50 in rewards, $51.25, if you count cash back earned on the $124.50 convenience fee.
Once again, the rewards just don’t add up. Paying a $124.50 fee to earn $51.25 in rewards isn’t much of a deal.
Even an avid traveler eager to rack up air miles by charging a hefty tax bill may want to think twice.
Let’s say you’ve got a $10,000 tax bill, and you really like the idea of earning 10,000 air miles by charging your taxes on your favorite air mile credit card. How do you feel about paying a $249 fee? That’s the convenience fee you’ll be charged for paying a $10,000 tax bill on a credit card. For that much money, why not just book a domestic airfare yourself?
Another thing to consider when charging a tax bill with a rewards card is how quickly you’ll be able to pay the balance in full.
If you’re planning on revolving the balance from month to month, you’ll be hit with finance charges, further eroding any rewards you gain by charging your taxes.
Your best bet is to charge your taxes to a rewards card with a zero percent introductory rate for new purchases. The longer this teaser rate lasts the better – a zero percent offer for a year or more would be ideal.
Of course, the absolute best strategy is to pay off your card balance straightaway and avoid all finance charges. Also, bear in mind the IRS does offer various other payment options that may be more appealing.
This year’s tax returns are already pretty rewarding, with many Americans set to receive tax rebate checks this spring. So you may want to pass on using a not-so-rewarding rewards card to pay your taxes!
Granted, your tax rebate check could be used to offset the convenience fee and any finance charges you may pay for charging your taxes on a rewards card. But is that really how you want to spend your tax rebate money?!? I don't know about you, but I can think of a few thousand other ways that I'd rather use my check!
This article was originally published on CreditBloggers.com. This article was written by Lucy Lazarony, a freelance personal finance writer based in Florida. Her articles have been featured on MSN Money, Credit.com and CardRatings.com. Prior to freelancing, she worked as a staff writer for Bankrate.com for seven years.
CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.
Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!
Thinking of getting a little something back on this year’s taxes by paying with a rewards card? There are ads seemingly everywhere touting how you can quickly rack up some great rebates by doing so.
But before you jump on the bandwagon, be sure to crunch the numbers first. As tempting as it is to pile on the rewards points and air miles by charging your taxes, it is rarely as rewarding as you might think.
First off, you’ll pay for the ease of paying your taxes by credit card with a 2.49% convenience fee. This fee isn’t charged by the Internal Revenue Service. It’s charged by credit card service providers such as Pay1040.com and Official Payments.
These companies act as intermediaries between taxpayers and the IRS. They validate credit card numbers and expiration dates, obtain the authorization from card issuers and issue confirmation numbers to taxpayers.
They then forward the payment to the IRS. And a tax payment listed as “United States Treasury Tax Payment” is charged to the taxpayer’s credit card account, along with a convenience fee.
Let’s look at some examples:
If you pay a $2,000 tax bill on your favorite cash back rewards credit card, you’d wind up paying a $49.80 convenience fee. Let’s say your card pays you 1% cash rebate for every dollar you spend with the card. By charging your $2,000 tax bill, you’d earn $20 cash back, but that’s more than offset by the $49.80 convenience fee.
Paying an extra $49.80 to earn $20 doesn’t make a lot of sense does it?
And while you may earn about 50 cents cash back on the convenience fee, you’re still shelling out an almost $50 fee for roughly $20.50 in rewards. That’s a difference of $29.30. And that’s not so rewarding, is it?
What about paying your tax bill with your favorite air miles credit card?
Let’s say you have a $3,000 tax bill and you’ll earn one air mile for every dollar you charge on your taxes. Earning those 3,000 air miles might be nice, but you’ll also be charged a $74.70 convenience fee. Are you so desperate for a few thousand air miles that you would be willing to pay an almost $75 fee?
The heftier your tax payment the higher the convenience fee you’ll wind up paying.
If you’ve got a $5,000 tax bill, you’d be charged $124.50 for the convenience of paying your taxes by credit card. Use a cash back card with 1 percent rebate and you’d earn roughly $50 in rewards, $51.25, if you count cash back earned on the $124.50 convenience fee.
Once again, the rewards just don’t add up. Paying a $124.50 fee to earn $51.25 in rewards isn’t much of a deal.
Even an avid traveler eager to rack up air miles by charging a hefty tax bill may want to think twice.
Let’s say you’ve got a $10,000 tax bill, and you really like the idea of earning 10,000 air miles by charging your taxes on your favorite air mile credit card. How do you feel about paying a $249 fee? That’s the convenience fee you’ll be charged for paying a $10,000 tax bill on a credit card. For that much money, why not just book a domestic airfare yourself?
Another thing to consider when charging a tax bill with a rewards card is how quickly you’ll be able to pay the balance in full.
If you’re planning on revolving the balance from month to month, you’ll be hit with finance charges, further eroding any rewards you gain by charging your taxes.
Your best bet is to charge your taxes to a rewards card with a zero percent introductory rate for new purchases. The longer this teaser rate lasts the better – a zero percent offer for a year or more would be ideal.
Of course, the absolute best strategy is to pay off your card balance straightaway and avoid all finance charges. Also, bear in mind the IRS does offer various other payment options that may be more appealing.
This year’s tax returns are already pretty rewarding, with many Americans set to receive tax rebate checks this spring. So you may want to pass on using a not-so-rewarding rewards card to pay your taxes!
Granted, your tax rebate check could be used to offset the convenience fee and any finance charges you may pay for charging your taxes on a rewards card. But is that really how you want to spend your tax rebate money?!? I don't know about you, but I can think of a few thousand other ways that I'd rather use my check!
This article was originally published on CreditBloggers.com. This article was written by Lucy Lazarony, a freelance personal finance writer based in Florida. Her articles have been featured on MSN Money, Credit.com and CardRatings.com. Prior to freelancing, she worked as a staff writer for Bankrate.com for seven years.
CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.
Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!
Labels: credit card, credit card tax payments, taxes
posted by CardRatings.com at 4:35 PM
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