If you owe taxes to the IRS, one option you have is to pay by credit card. However, you can't pay the IRS directly by credit card. To do so, you'll have to make your payment through one of four private companies that provide this service:
- Official Payments Corporation (www.officialpayments.com)
- File Your Taxes (www.fileyourtaxes.com)
- WordPay US, Inc. (www. fileonline.1040.com)
- Link2Gov Corporation (www.pay1040.com/SpecialOffers/TurboTax)
Paying by credit card is convenient, and will avoid IRS interest and fees if you don't have the cash to pay by April 15. But is it a good deal? Generally, no.
Paying your taxes by credit card is expensive. You'll be required to pay the service company a "convenience fee" based on the amount of your payment. The fee does not go to the IRS. The "convenience fee" ranges from a low of 2.35% to a high of 3.93%. This means, for example, that if you make a $1,000 payment, you'll be a charged a fee anywhere from $23.50 to $39.30.
In addition, unless you pay off your credit balance immediately, you'll have to pay your credit card company interest on the payment. The interest your credit card company charges is likely to be higher than the penalties and interest charged by the IRS for late payments.
If you don't have the cash to pay your taxes, you'd be much better off borrowing the money from a friend or relative, obtaining a personal loan from a bank, or taking out a home equity loan (assuming you have a home with equity).
Alternatively, you can ask the IRS to permit you to pay what you owe over time in installments. If you owe $50,000 or less in combined taxes, penalties, and interest, you should be able to get an installment payment plan for up to 72 months just by asking for it. You can apply online at the IRS website using the Online Payment Agreement Application. However, if IRS computers show that you haven't filed all past due tax returns, you will not be eligible for an installment plan. Interest and penalties continue to accrue on your unpaid balance while you make your installment payments.