Paying Taxes with Plastic

March 16, 2009
Special Feature

If you’ve been figuring out how much you’ll owe Uncle Sam come April 15, the bottom line number may come as a shock.

If you’ve been figuring out how much you’ll owe Uncle Sam come April 15, the bottom line number may come as a shock. That may add to the temptation to put the tax bill on your credit card, spreading out the payments over several months and, at the same time, earning you some miles or dollars or whatever other perks your credit card company offers.

It may sound like a good deal and it’s certainly convenient, but it can cost you a lot more than writing a check for the full amount. First off, you’ll pay an appropriately named “convenience fee” of 2.49% of your taxes, which will add about $25 to your tax bill for every $1,000 you owe. The interest on your credit card balance will also add to your cost, unless you pay it in full within the card’s grace period, which probably runs against the reason you want to use plastic in the first place.

There’s another way to spread your tax payments over time. If you’re unable to pay the tax in full and can prove it to the satisfaction of the IRS, you can apply directly to the IRS for an installment agreement. To apply, go to www.irs.gov, fill out IRS Form 9465, and file it with your tax return. If you can pay the full amount within 12 months, the odds are good that your application will be approved. You’ll be charged a one-time set-up fee of $104, or $52 if you agree to have the monthly payments automatically deducted from your checking account. You’ll also pay interest on the outstanding amount, but it’s probably going to be a lot less than you’ll pay on your credit card.