Are you worried about your tax obligation payment??? Many of us get attracted with these kinds of luring options:
- Pay your yearly tax with late fee that is hardly 1%, in some cases
- Avail the facility of credit card
Sounds good…but wait before taking any final decision look into some of the dark sides of paying taxes by credit card as “Paying taxes by credit card can cost you”.
1. Interest expense
There is an interest expense associated with the amount of tax you are indebted with. This amount of interest is directly proportional with time taken by the tax payer to pay his credit card balance. It means if a taxpayer takes a longer time to make payment, the more he will be indebted in interest. Via a low interest rate credit card monthly interest charges can be reduced but such cards are almost rare.
2. Convenience fee
You must have definitely heard this famous quotation “There is no gain without pain”. Paying taxes by credit cards truly depicts the meaning of it. As credit cards welcome you with flexibility, there is a convenience fee associated with such facilitation. This convenience fee is charged by authorities accountable for tax collection. Like 2.49% of your total tax liability is deducted by the IRS as convenience fee. So if $ 100 is your tax bill, $ 249 is an extra cost being paid by you to the IRS or any other tax collection organization and this convenience fee increases as your tax bill amount increases. Hence higher tax amount plus higher the convenience fee makes paying taxes by credit card to cost you more.
3. No choice in case of insolvency
Keep in mind insolvency can’t even liberate you from the credit card balance outstanding due to your tax liabilities. No one can bankrupt on credit card debts incurred via your income tax. In the future if you anticipate having financial troubles it’s a guide to avoid paying taxes by credit card.
4. Risky credit rating of the card holder
Paying taxes through credit card may make you riskier in the eyes of card issuer body. The service provider of credit card constructs your image as being troubled by financial crises because if anyone can afford his tax liabilities then there is no reason for using credit card. This risky assessment pushes the issuer to charge heavy interest rate (the more the risky borrower, the more the rent of money), decrease his borrowing limit or astonishingly sometimes terminate your credit card. Paying taxes by credit card will cost you is indisputably justified.
Paying taxes by credit cards enables you to make the tax payment in an extended time period but, it’s exactly the same as any other credit card purchase along with additional costs associated with it. You are liable to pay your credit balance, interests, convenience fee and delayed installments are fined and negatively impact your credit rating. All these things can deteriorate your credit history leaving you unable to get credits down the road. Hence the cost aligned with paying taxes through credit card is substantially high as compared to benefits associated with it.