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Financial Literacy Company Cautions Taxpayers Against Charging Taxes
Credit card companies are offering incentives to taxpayers. However, charging taxes to your credit card can be an expensive payment method, especially when the IRS offers an installment plan, and often negate any benefits from credit card incentive programs.
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March 6, 2006 (FPRC) -- Executives at the National Financial Awareness Network, Inc., a Maryland-based financial literacy company, are urging taxpayers to resist incentives to pay taxes with their credit cards.
Major credit card companies are offering points, miles and other rewards to taxpayers who charge the taxes they owe to the IRS. Several credit card issuers are working with airlines to award extra miles for every dollar of taxes paid with credit. Other companies are tempting taxpayers with cash-back rewards.
John Janney, president of NFAN, said that taxpayers planning to pay their taxes with credit cards should be aware that the service providers that process the transaction charge a fee of 2.49 percent of the amount owed. Paying an IRS tax bill of $1,800 will cost that taxpayer an extra $44.82 in fees to the third-party credit card processing firm.
“The expensive fees, interest rates and potential penalties that credit card companies charge often negate any benefit cardholders receive from promotional incentives,” Janney cautioned. “It appears that credit card companies are selling the concept that it’s financially responsible to pay taxes with plastic, but taxpayers should rethink such a choice, especially when the IRS already offers an installment plan for taxpayers unable to pay in full.”
According to data provided by the IRS, about 1.5 million people paid taxes with credit cards in 2005, which was a 54 percent increase from the previous year. This number is expected to increase further because this is the first year the IRS is allowing businesses to pay taxes with credit cards.
Janney also warned that the default interest rates, Universal Default policies and expensive penalty fees credit card companies charge their customers make paying taxes with credit cards an even less prudent choice. Default interest rates as high as 29.99% are applied to an account balance if the cardholder makes one late payment.
Over 40 percent of credit card banks use the highly controversial Universal Default policy to reset a cardholder’s interest rate to as high as 27.99 percent if the cardholder is late paying another credit account. Penalty fees for paying late or going over the account’s credit limit are often as high as $39 and account for over 30% of credit card company profits.
“If you are thinking about using your credit card to pay your taxes, read the fine print that accompanies any special offer and develop a plan beforehand to promptly pay it off,” said Janney. “In the long run, taxpayers who pay their taxes with credit cards will most likely pay a lot more than they would have paid if they simply took advantage of the IRS installment plan.”
Many state tax revenue offices also allow taxpayers to pay taxes by credit card.
About NFAN:
The National Financial Awareness Network, Inc., is a financial literacy company based in Columbia, Maryland, that offers educational products and services to debt relief agencies, their clients and the general public. For more information, please visit their website at www.nfan.com.
Send an email to John Janney of National Financial Awareness Network, Inc.
877-259-6968
Keywords:
financial literacy, credit card, taxes
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