Federal and state tax authorities encourage taxpayers to pay their taxes with credit cards; but doing so may not be in the best interest of the debtor.
- The interest rates on credit cards are typically higher than the interest charged by the state or tax authorities. Once you charge your taxes to a credit card, unless you plan to repay the debt immediately, you could incur charges that are eventually equal to or even exceeds the amount of your original tax debt .
- Believe it or not, the federal and state tax authorities are more flexible than credit card lenders. If you need more time to repay your taxes, both state tax authorities and the IRS are often willing to setup payment arrangements. Oftentimes you can repay your taxes over a period of two to three years if needed. Credit card companies will also allow you to repay the debt overtime but not without a high cost attached.
- Tax authorities are able to place your account in uncollectable status if you are unable to pay due to illness, job loss or other issues. What that means is that they will freeze all collection activity until you are able to repay the amount. They will usually give you at least 6 months before they check in with you to find out if your financial situation has improved.
- If you file Chapter 7 bankruptcy at a later date, you may not be able to discharge the credit card amount comprised of the taxes if those taxes would not have otherwise been dischargeable in bankruptcy. Please check with your bankruptcy attorney to discuss your particular circumstances.