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Are you using plastic to pay taxes? Think again
And you thought you could only buy things with your credit card. Well, here’s some news for you: Now credit card issuers are encouraging people to use their credit cards to pay federal taxes. And an increasing number of people are falling for this easy trap. Check out these figures: In 2005, nearly 1.5 million taxpayers paid federal taxes on their credit cards or MasterCard- and Visa-linked debit cards. According to IRS data, this figure is up 54 percent from 2004!
And to make the offer even more lucrative, credit card companies like Chase and United Airlines are now awarding double miles for each dollar of taxes paid on their United Mileage Plus SignatureVisa card. Not to be outdone, American Express also has similar deals on its Delta and Starwood credit cards.
Now should this added convenience make us taxpayers happy or should we be wary and read between the lines before using plastic to pay taxes. The second option is more viable. And there are many reasons against using plastic, of which the most prominent is that the rewards from credit card companies are not going to stop them from charging you interest rates. These rates can go up as high as 30 percent if you don't pay off your credit card bill every month.
Another problem with using credit cards is that in addition to the tax, you will have to pay an extra 2.49 percent of the federal or state tax. This fee goes to third-party companies that process the transaction.
Despite all these problems associated with using credit cards, the number of people availing of this facility is only increasing. According to experts, the number of tax payments charged to credit cards will rise even further in 2006.
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