IRS Payment Plans vs. Paying Taxes with a Credit CardPublished:
It’s time to pay up! You filed your taxes and found you owe a little’or perhaps quite a bit. Either way, you’re scrambling to figure out what to do. Should you set up an IRS payment plan or put it all on your credit card? How much interest are you going to be charged and is one a better choice than the other?
Instead of one clear choice, it’s really case by case. There are a few things you should think about when deciding whether to choose an IRS payment plan or a credit card. Let’s take a look.
How Fast Can You Pay It?
One of the most important things to take into consideration when trying to decide between an IRS payment plan or a credit card payment is how fast you can pay it back. Often, this may depend on how much you owe. If it’s a substantial amount, it may take a long time to pay. As the time ticks by, interest accrues.
In fact, if you can pay your taxes on an IRS payment plan within 120 days, there will be no penalties at all. If this is the case, then definitely choose this option. The less headache the better.
However, if you will end up going over the 120 day limit, then you have further decisions. These are still affected by time. Some taxpayers choose to pay their taxes on a credit card that has 0% APR for a limited time. They then try to pay it off before the percentage goes up.
This is somewhat of a gamble. If you are able to pay off the taxes before the interest kicks in, then you’re covered. However, if you can’t or you let some payments slip, then all of a sudden you owe way more than you did before!
IRS Payment Plan
On the other hand, the IRS will charge you a guaranteed interest. It’s typically from 5% to 10% per year. As such, the quicker you pay it off, the less interest will hit your account. In this case, you may end up paying a little bit more, but hopefully not too much.
It’s a tough decision to make and each option must be weighed individually. Keeping in mind how quickly you can pay can really help you make the decision between a credit card and an IRS payment plan when it comes to paying taxes.