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With tax season in full swing, those who haven't set enough aside from their earnings can find that they don't have enough cash on hand to cover their tax bill.
If you're in this situation, don't make the costly mistake of paying your taxes with a credit card. It sounds like an easy out, a short-term solution with no penalties involved. However, that is far from the truth! To make matters worse, the IRS supports credit card payments! The IRS states on its website that paying with a credit card is quick, safe, secure, and rewarding.
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Rewarding? What? It's a fact that paying your taxes with a credit card is a quick way to enter the poor house!
You'll Pay More
It actually costs you more money to use a credit card. If you've used a credit card at a store, the bank charges the store a fee to accept the credit card purchase. But the IRS isn't a store and doesn't have to pay those fees charged by the bank. So guess who ends up paying them? You do. What's so rewarding about paying more?
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Also, you can expect that bank fee to be a minimum of 2.49% of your payment. So as soon as you pay, you're in the hole. If you owe $10,000 to the IRS, you would be charged $249 just to use a credit card. Can't you think of many other ways you'd rather spend $249?
What If I Don't Have the Money?
If you're in a tight spot and absolutely don't have the money to pay your taxes, there is another option available besides using a credit card. It is an installment plan offered by the IRS. While this plan still charges an interest rate, it is usually much lower than the typical credit card rate. The IRS will tell you otherwise just so they can get their money immediately. Don't fall for the pretty pictures they try to paint for you!
Remember, using credit cards for anything—even to pay taxes—is a very bad idea. If you need last-minute help with your taxes, it's a good idea to contact a tax professional who will walk you step by step through your individual situation.