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Answer:
Dear
BuyandHolder,
Yes.
You actually can. And, according to the IRS, last
year over 950,000 taxpayers used a credit card to
pay their taxes. So why not all taxpayers? Because
it's an expensive way to settle your debt.
Here
are the facts you need to know before making a final
decision.
Convenience
Fee
Granted
using a credit card buys you some time if you don't
have the cash on hand, but it also means you must
pay a "convenience" fee. That fee is equal to 2.49%
of the balance due the IRS. So, let's say you owe
$1,000 in taxes; your fee then is $24.90.
We
know that fees are standard with credit cards -- but
usually it's the restaurant, department store or gas
station that picks it up. However, federal law prevents
the IRS from paying the fee. So that leaves only you!
$Tip:
You'll be hit with the 2.49% fee even if you pay
your credit card bill in full within the required
time limit.
Incentives
Executives
at the various credit card companies see the fact
that the IRS is now accepting plastic as a land of
opportunity...and this year they've come up with a
raft of incentives to encourage you to use their cards.
For
example, American Express Delta SkyMiles is offering
double miles to cardholders who use their card to
pay federal taxes. United Mileage Plus Visa cardholders
get 2 frequent flier miles for every $1 spent when
using their card to pay federal income taxes or property
taxes.
Paying
With Points
American
Express cardholders can use their membership rewards
points to pay the 2.49% convenience fee. It's 200
points for every $1 in fees.
Avoiding
The Fee
Discover
Card has made a deal with H&R Block and TurboTax.
Use certain services or products offered by these
two companies and Discover will cancel the 2.49% fee
for their cardholders.
Those
who have a MasterCard debit card also get the fee
waived when using H&R Block's online service.
Crunch
The Numbers
The
new perks made using plastic much more enticing, but
you need to do the math and make absolutely certain
it comes out in your favor.
You
certainly don't want to use plastic if you can't pay
off your card balance in full. The average interest
rate on a variable credit card as we go to press is
about 13.5%. Expect that to go up if the Fed continues
to raise rates.
Even
if you do pay the balance in full every month, you'll
still owe the convenience fee -- unless you like and
use one of the above-mentioned ways to skip it.
The
IRS Plan
An
alternative to using a credit card, and one that's
less expensive for most Americans, is the IRS Monthly
Installment Plan. It offers a better rate than
you get with most variable rate credit cards. The
rate for the first quarter of this year is 5% and
in the second quarter, 6%. Reminder: The average variable
credit card rate is currently 13.5%.
Caution:
You must make your payments to the IRS on time.
If you don't, the IRS will bill you for the entire
amount due.
For
details and an application, get IRS Form 9465 at:
www.irs.gov.
It costs $43 to set up the Installment Plan. You can
send in checks every month or have your payments automatically
taken out of your checking account or your paycheck.
For
More Information
Click
here to read Nancy's article from last week
that discussed IRAs.
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