COLLEGE STATION The number of Americans using credit cards to pay their taxes continues to rise, with experts indicating the trend may gain more popularity among individuals because of convenience and society’s shift into an e-commerce method of trade.
The Wall Street Journal recently reported that more than 6,400 credit card payments had been received by the Internal Revenue Service by the first week of March. American Express, Mastercard and Discover are the three major credit card companies participating in the program, which is in its second year. For all of last year, the IRS received 53,000 card payments.
“This is interesting how we are moving towards this type of e-filing,” said Nancy Granovsky, a family economist with the Texas Agricultural Extension Service and certified financial planner. “It’s phenomenal what’s happening.”
Taxpayers can pay by credit card either by using tax preparation software or by telephone.
“As a matter of fact, people that would ordinarily file an extension in April and use Form 4868, if they owe money on their taxes, they don’t have to file that form so long as they pay by credit card,” Granovsky said. “However, that does not mean that you wouldn’t accrue penalty and interest charges if you didn’t pay the correct amount.”
If individuals are paying by credit card, there is a “convenience fee” associated with the transaction.
“All of that information will be disclosed before the person actually agrees to paying by this type of method,” Granovsky said.
Those fees can range from $3 on up to $2,500 if a taxpayer owes up to $99,000 in taxes. For example, if a person owed $1,000 in additional tax, they can expect to pay about $35 as a convenience fee.
Official Payments Corp. is one private company participating in the program, allowing people to pay their tax balances by phone using American Express, Discover or Mastercard.
“And then if people are doing electronic filing and using Intuit’s Turbo Tax or MacInTax products, they can pay using the Discover card,” Granovsky said.
Another form of electronic filing is through a tax practitioner using special software and can be paid by American Express, Discover or Mastercard.”
Those filing a return for the first time will not be able to pay with a credit card by phone. However, they still can e-file and pay using a tax practitioner’s software.
There are many advantages to paying tax bills via credit card, Granovsky said.
“Suppose you have a tax bill of a few thousand dollars,” she said. “The upside for people who like to play the points game (where individuals earn points for purchases, such as frequent flyer miles with their credit card) is that it’s one more way they can accumulate more points and defer payment at least until the bill comes in. You don’t have to separate yourself from your money quite as quickly.”
Granovsky said many individuals will elect to pay by credit card because “they find it convenient to do it.”
“People who are interested in experimenting with e-options maybe would be inclined to consider this if they owe taxes,” she said. “This doesn’t have anything to do with anyone who is planning to write a check. It’s just for those who want a slight delayed payment tactic.”
But taxpayers should be aware of some of the drawbacks associated with paying tax bills by credit card.
“The potential difficulty is adding on to an existing debt load,” Granovsky said. “If the debt goes up from this, you have to consider the financial toll this can bring about and the emotional stress. Perhaps those cards that require payment in full would not be the case, but for a person who doesn’t pay their balance in full each month, they run the risk of increasing their debt load each month if they cannot pay off the balance owed easily.”
Another point to consider is that paying tax bills by credit card isn’t completely free.
“There will be that convenience fee associated with the use,” Granovsky said. “There may be a little more complexity if an error has been made and there could be some technical glitches associated with a new program like this.”
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