It has become a lot easier for taxpayers to pay their taxes using a credit card; but doing so may not be a good idea. Below are three reasons why a debtor should not pay their taxes with a credit card.
- You will end up paying more. Yes paying your taxes late will result in interest and penalty fees; but that won't be nearly as much as the interest you will pay on a credit card. Compared to credit card interest rates, the interest rates for both state and federal taxes are miniscule.
- You have more payment options with the taxing authorities. While the IRS and other taxing authorities will try to convince you to pay your taxes with a credit card, don't be pressured into taking on new credit card debt. You are not required to take on credit card debt to pay taxes even if you have the credit available. Take advantage of the numerous payment arrangements available through the IRS and other tax authorities.
- If you decide to file bankruptcy after paying for your taxes with a credit card, you may not be able to discharge that portion of the credit card debt in bankruptcy. The bankruptcy code prohibits the discharge of debts incurred to pay taxes if those taxes would not have otherwise been wiped out. In other words, if you charged your taxes to a credit card this year and filed for bankruptcy a year later, you would not be able to discharge that debt in Chapter 7 bankruptcy.