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Taxes? Don't use plastic to pay

Depending on liability's amount, a "convenience fee" of up to 3.93% could outstrip any card rewards.

    by By Kevin G. DeMarrais, McClatchy Newspapers, Inquirer
    Published 

HACKENSACK, N.J. - If you owe money to Uncle Sam, paying your tax bill with a credit card might seem appealing, especially if you get frequent-flier miles or other benefits for each dollar charged.

Think twice. As happens too often with "free" benefits, these could be costly.

Paying taxes with a credit card is now widely accepted and even encouraged by the issuers, said Bill Hardekopf, chief executive officer of LowCards.com, a Birmingham, Ala., tracker of credit card trends. "But this is not a good idea for consumers."

For starters, taxpayers using plastic pay a "convenience fee" of 2.49 percent to 3.93 percent of the payment.

"If your bill is in the hundreds, it's not a big deal," Hardekopf said in an interview. "But if it's into the thousands, 2.49 percent can really add up."

Even at the lower rate, if your tax liability is $8,000, you would pay $200 just for the convenience of using plastic.

And that is just the start if you are among the 46 percent of American households that carry a credit card balance from month to month: You could be hit with an extra $99 a month in interest (using the average annual rate of 14.9 percent), he said.

"It makes no sense," he said. The emphasis on credit cards and taxes is backward. Households should use their tax refund to pay off their credit card debt, instead of using their credit cards to pay their taxes.

Despite the costs, almost two million taxpayers paid with a credit card in 2006, a 36 percent increase over 2005, the IRS reports.

"Consider this option only if you pay off your balance each month," Hardekopf said, "and [if] you're getting some magnificent rewards worth more than the 2.49 percent fee you will have to pay."

Why a fee to a third-party provider, rather than a direct payment to the IRS?

"In order to accept credit card payments, someone must pay the credit card companies a fee that generally ranges from 1 [percent] to 2 percent," IRS regional manager Bill Cressman said.

But the IRS is not authorized to do this, so the taxpayer pays the fee, he said.

This year's filing deadline is April 17.

    By Kevin G. DeMarrais, McClatchy Newspapers, Inquirer