Reward Yourself for Paying Taxes - Other News

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Reward Yourself for Paying Taxes

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Reward Yourself for Paying Taxes

Paying taxes is no fun. But if you must render to the government, you may be able to lessen the pain by using a credit card that earns rewards on your payment to Uncle Sam.

The IRS accepts all major credit cards – American Express, Mastercard, Visa and Discover. However, the ability to earn points, miles or cash back on taxes paid all depends on the policy of the card issuer.

Once you verify that the financial institution issuing your credit card provides rewards, the trick is running the numbers to ensure that the fee charged by the third-party intermediaries that handle card payments for the IRS doesn’t exceed whatever rewards you may earn.

Watch out for fees

Convenience fees of the six current payment processors listed on the IRS website for payment via credit card when you file by paper range from 1.87% to 2.35%. If you e-file the fees are even higher. Flat fees apply for payment via debit cards, but they generally don’t offer rewards.

For every $1,000 you owe in taxes, if you file by paper you could pay up to an extra $23.50 in fees. In many cases, the rewards would not trump that. But paying the fee could be worth it if the rewards would be enough to help you cross a major reward threshold like earning a sign-up bonus.

Late filing card strategy

The Huffington Post suggests that if you will be late filing your taxes, using a credit card to pay the IRS may sound counterintuitive, but could have its pluses since the IRS charges interest on anything you owe during the six month extension.

One strategy would be to use a credit card with a 0% intro APR for a year, which gives you twelve months to pay off your taxes without incurring the IRS interest charges – with the possible added bonus on some cards of earning rewards in the form of cash back or travel rewards though 0% interest cards that offer rewards are hard to find.

Financial prudence

Obviously, it’s financially prudent to pay your taxes in full if you have the savings on hand so you’re not running up more debt on a credit card. But if you can pay your card balance in full, paying your taxes via credit card is convenient, and also gives you the ability to pay the taxes you owe over time as long as you meet your minimum payment. Otherwise you’ll end up paying interest charges you would not have incurred by paying the IRS via check.

All credit cards terms, fees and rates mentioned in this article/post are actual on the posting date. See the current products’ Terms & Conditions on the issuing banks' websites.
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