Pitfalls of Paying IRS With a Credit Card

When consumers receive their annual tax bill, it may be larger than they expected or can afford to pay at once, and in many cases, some may even consider paying the total off with their credit cards.

However, there are a number of downsides to paying one’s annual tax bill with credit cards, according to a report from USA Today.

The most significant of them is that consumers will have to pay an added fee just to push the transaction through. This charge, known as an interchange fee, is something that shoppers very rarely see so plainly in everyday life, as the companies they’re buying from almost always pay them -- and usually build that added cost into the prices of the items they sell.

But the Internal Revenue Service will not pay them, and the interchange fee consumers pay on their tax bill depends on their credit card lender, and can range anywhere from 1.89% to 3.93%, the report said. That means a consumer who has a $1,000 tax bill, for example, might have to pay as much as $39.30 just to put the bill on their credit card.

However, there are a number of other consequences that consumers may end up facing if they put their tax bill on their credit card, the most obvious of which is that they’ll be adding to their outstanding debt significantly. In addition to the added cost of the transaction fee, that might mean that they will have to pay far more in interest payments if they don’t pay off the balance in full at the end of the next billing cycle.

Another issue is that it can negatively affect consumers’ credit standing. The second-largest portion of a consumer’s credit score based on how much of their available credit they’re using at any one time. Those who add thousands of dollars or more to that total in one fell swoop will likely take a huge chunk out of that rating, because as far as lenders are concerned, the less available credit that gets used, the better.

In many cases, those who can’t afford to pay tax bills all at once can contact the IRS to negotiate a repayment plan that will help them to better manage the bill without putting it on their credit card or not paying it at all.

[Free Resource: Check your credit for free before applying for a credit card]

---

Credit.com provides readers with unique insight, helpful tips and straight answers about their financial world. Our team of reporters and experts explore credit, loans, debt, saving, and identity theft topics, all designed to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!