During tax time you may be asking how to do this, but what you should be asking is if it even make sense for you to do so?

I got this interesting email from American Express…

As you see, they tout the idea of paying taxes with a credit card as being “easy” and “rewarding” but are those claims really accurate?

Here’s the truth about credit card tax payments…

Yes, debit and credit card tax payments are possible. But the IRS is not the one that directly processes your credit card payments. Rather, third-party intermediaries do it and charge a fee for it. Here’s a quick fee comparison:

Official Payments Corporation

Contact - web: officialpayments.com/fed  phone: 1-888-UPAY-TAX
Fees – 2.35% when paying with credit card, $3.95 flat fee when paying by ATM/debit card
Cards Accepted - Visa, MasterCard, Discover, American Express

RBS World Pay, Inc.

Contact - web: payusatax.com  phone: 1-888-9-PAY-TAX
Fees – 1.95% when paying with credit card, $3.89 flat fee when paying by ATM/debit card
Cards Accepted – MasterCard, Visa, Discover

Link2Gov Corporation

Contact - web: pay1040tax.com and businesstaxpayment.com  phone: 1-888-PAY1040
Fees – 2.35% when paying with credit card, $3.89 flat fee when paying by ATM/debit card
Cards Accepted – MasterCard, Visa, Discover, American Express

*please note that fees may have changed since time of writing

When it does and does not make sense…

If you want to pay federal taxes with a credit card for points, rewards or cash back, as you can see it probably won’t make sense since the minimum you will be paying is 1.95%. That being said, the Discover Escape does give you 2% in rewards on all spending, but even with that you will basically be breaking even.

Now if you’re interested using a credit card for taxes simply because you have no choice (as in, you can’t afford to pay cash) then it might make sense in certain situation. Depending on your interest rate and the IRS late payment interest rate (which changes all the time) for some situations I could see it being worthwhile as a last resort option.

Can you write-off the fees?

This is something you definitely have to factor into the equation in determining whether or not it makes sense. In 2009 the IRS changed their stance on the deduction of debit and credit card tax payment fees, but not everyone will qualify to do so. Reportedly, here’s a quick overview of how it works…

• You need to itemize in order to deduct, because reportedly the fees are listed under the “job expenses and certain miscellaneous deductions” section. So if you take the standard deduction and don’t itemize, then you won’t be able to deduct the convenience fees of paying tax with a credit card.

• For those that are itemizing, the miscellaneous expenses must total more than 2% of your adjusted gross income, and even then you can’t deduct that amount… only the amount that exceeds the 2%. For example, if 2% of your adjusted gross income equals $500 and your total miscellaneous expenses were $550, then only the $50 would be deductible.

• Only the credit card tax payment convenience fees qualify. And interest accrued on the resulting balance is NOT tax deductible.

(Please note that I am not a tax professional and nothing on this site should be misconstrued as tax advice. Consult a professional tax adviser on the above matter. Also please note that tax laws are always subject to change, which is another reason why it’s a good idea to check with a pro because the above information may be outdated/inaccurate.)

I would expect most households won’t benefit much (if at all) from the possibility of deducting the convenience fees. However for some situations it may very well be beneficial and make the idea of using credit card payments all the more alluring.

If you can’t pay your tax payments in full…

…then you may want to consider getting a new credit card that has a 0% offer for purchases and then using that to pay your taxes. That way, there’s the potential of saving money on interest. For the best credit cards that do this, check out these balance transfer deals

The “mother of all bailouts” is what they’re calling it – the $700 billion bailout of the U.S. financial market. Under the current plan, the government will buy back distressed assets from private holders on Wall Street.

Now how much the cookie crumbles depends on what types of debts are included. Will it only be mortgage-backed securities? Or will they include credit card debt, which is packaged up and sold on Wall Street the same way mortgages are.

The plan was supposed to be only for “mortgage-related” assets, but a recent draft included “troubled assets” and of course with that sky is the limit – it could include virtually any type of troubled loan.  If this happens, the ultimate cost to the taxpayers may be far more – in the trillions.

Either way, roughly 87% of Federal tax revenue comes from individuals, so you will be the one paying 87% of the bill for these corporations.