Paying Taxes with Plastic May Not Be Rewarding
This tax season, credit-card issuers want to make it rewarding for people to pay their taxes by just saying "charge it." Many are offering extra miles or cash back rewards for every tax dollar paid by plastic.
This may sound tempting, but IndexCreditCards.com--a Web site that offers credit card news and information-- says don't do it. The reason: Unlike stores, which usually pay the 2-3% transaction fee on every purchase made with plastic, the IRS doesn't absorb that cost. You do--and that could cost way more than any rewards you may receive.
IndexCreditCards.com does the math: Say you owe $4,000 in taxes and you want to pay by credit card. Given the service charge [usually 2.49 percent], you would actually pay $4,099.60. So, if your goal was to earn rewards, and your cash back was 1% of the transaction, you'd be paying almost $100 to gain only about $40 worth of rewards.
Of course, there may be some other deals that still make it attractive to use plastic to pay your taxes. (According to Cardweb.com, a Web site that publishes all sorts of valuable information about all kinds of payment cards, 1.4 million Americans paid their taxes by credit cards last year.) This year, Cardweb notes, there are ways consumers can pay without incurring a service charge--or at least a reduced one. H&R Block, for example, has made arrangements with Visa and MasterCard so its customers don't have to pay the fee, or at least the usual amount.
So, do your math carefully before you decide to pay your taxes with plastic.
Also, in case you missed it over the weekend, check out my story on the IRS warnings on phony e-mails. Plus, washingtonpost.com's guide to preparing and filing your taxes is live and available whenever you need it between now and mid-April.
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