The US Government now allows you to use your credit card to pay for your taxes. However, when the law or act was passed to allow this it specified that the government was not to pay any fees associated with processing the credit cards. So to make everything legal, third party organizations are allowed to take payment on behave of the government, but they have to add a fee in order to cover the cost of processing the payment. Usually this fee is about 2.5%.
For most people this means that paying by check will be less expensive. However there are a few cases where it may be worth while to pay by credit card. The first situation is when you don’t have enough money to pay for your taxes but you expect to have it soon. The 2.5% fee plus any interest may be less than what you’d pay in fees for a late payment to the IRS.
The second situation is when you have special benefits for using your credit card. For example, many places give away free sky miles or other types of bonus points programs for using a credit card. Normally the value of these programs is less than 2.5% of what you are charged, but occasionally there are special deals that make them worth more.
For example, American Express recently ran an invitation only promotion where you could sign up for a free card. If you spent more than $1000 in the first month , they would give you 50,000 reward points. 50,000 reward points can be redeemed for a $250 gift card, so if you had to pay $1000 in taxes you’d end up payin $1025 with the 2.5% fee. However if that provided you with a $250 gift card you’d end up making $225 off of the transaction.
If you look at doing something like this, make sure you read the fine print. There are often limitations or exclusions for specific types of transactions. For example, some special offers are only good on transactions at grocery stores and restaurants.
Here are some related pages:
http://www.finance-weblog.com/50226711/credit_card_companies_pursue_your_tax_business.php
http://www.pfadvice.com/2006/02/13/use-a-credit-card-to-pay-taxes/
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