Millions of people across the nation are looking forward to a nice refund check from the IRS. But if you're one of the unfortunate ones who has to cut a check to Uncle Sam this year, you'll want to steer clear of one increasingly popular way to pay taxes: using your credit card.
Many people are so scared of the IRS that they'd do just about anything to avoid any potential problems. That's one reason that paying your outstanding taxes with a credit card is so appealing: One click and you're done.
But the price of using a credit card is simply too high compared to the alternatives.
The private companies that the IRS has authorized to accept credit card tax payments charge as much as 2.35% in convenience charges up front. Even worse, if you can't pay off the resulting balance on your card, you'll boost your finance charges -- and with typical cards carrying annual rates of 16% or more, those charges will add up in a hurry.
If you have the money to pay by check, it makes far more sense than charging it. Unless you earn perks like cash-back rewards or airline miles that are worth more than the 2.35% fee, there's no good reason to pay it.
Even if you can't afford to pay your whole tax bill right now, a better alternative for some is to use the IRS' own procedures to get some relief. Requests for up to 120 days of additional time to pay in full carry no fee, and although interest continues to accrue, the current annual rate of 3% is far less than what many credit cards charge. Longer repayment plans come with an application fee, but it can still be worth it if you can qualify for reduced IRS penalties.
So if you're trying to figure out how you'll pay your taxes next week, think twice before you use your credit card. You might be far better off seeking another way to pay.
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Motley Fool contributor Dan Caplinger is paying his taxes the old-fashioned way next week. You can follow him on Twitter here.
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