While a lot of people like to get tax refunds, most experts agree that over paying taxes costs you money.  The goal should be to “break even” on what you have withheld from your salary for taxes and what you actually owe in taxes.  This allows you to use (or save) your money during the year instead of “lending” it to the government interest free.

OK, so you tried to break even but came up short; now you owe Uncle Sam some money.  What is the best way to pay your tax bill?  Although the idea of charging your tax debt to your credit card may be tempting, fees and interest charges could end up costing a bundle.

By paying your taxes with plastic, you end up paying an additional 2.49%--the fee merchants usually pay credit card companies when you charge purchases. The IRS isn't willing to pay the card companies the fee, so you have to pay it.

Before you whip out the credit card to pay your tax bill consider this:

• Paying $15.00 extra to charge a $600 tax bill may not seem like a big deal, however if you owe $3,000, or $4,000, you're looking at fees of between $75 and $120.  Also, unless you pay off your credit card balance within the grace period, your tax bill will begin to pile on interest.
• If you can’t pay the taxes in full try some other options such as borrowing the money from a friend or family member or taking a loan from the credit union.  You can even set up an installment plan with the IRS. They charge a $52 installment setup fee but the interest rate is generally lower than most credit cards. Even if your card carries a lower interest rate, the installment plan probably will get the debt repaid quicker. 
• If you decide to use your card to gain reward points, frequent-flier miles, or other benefits, make sure you're able to pay the balance in full. Accumulating interest on that tax bill can quickly wipe out the benefit of those rewards.

Even if you can't afford to pay your taxes in full, be sure to file your tax return on time. The monthly interest rate for not paying the tax you owe on a return that has been filed is one half of one percent (0.50%), but jumps to 5% for those who don’t file. On a $1,000 bill, that amounts to $10 vs. $50 a month.

You can find more information about payment options at www.irs.gov or you can contact the credit union to see how we can help.  We may have just the right fit because

It’s Only Money

John