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Should You Pay Your Taxes With a Credit Card?

By U.S. News & World Report

When you receive your W-2s and start preparing your taxes, you can quickly determine if a tax refund isn’t in your future. You may even discover that you owe the government a tax payment.

From mailing a check to electronic payments, there is a wide range of options for paying taxes. You may be surprised to learn that paying with a credit card has been an option since 1999.

While fees and potential interest charges generally make credit card payments one of the less attractive options, there are some instances when paying with a credit card can make sense.

[See: Answers to 7 Burning Tax Questions.]

When you shouldn’t pay taxes with a credit card. There are two main reasons to avoid using a credit card to pay your taxes: Fees and interest charges. Because of the processing fee, paying your taxes with a credit card is one of the most expensive options. There are three service providers that can process IRS card payments: Pay1040.com, PayUSAtax.com and OfficialPayments.com. Fees range from 1.87 percent to 2 percent (if you use tax preparation software, the fees increase to 2.35 percent to 3.93 percent).

Credit card interest rates are higher than the interest you might pay for a personal loan or by taking advantage of IRS payment plans. If you are unable to pay off your credit card bill in full before incurring interest charges, you could end up paying 13 percent or 21 percent depending on your card’s interest rate.

For example, if you owed the IRS $5,000 and elected to pay with your credit card, you could be charged a 1.87 percent fee of $93.50 and have a total of $5,093.50 on your card for both transactions. Even if your interest rate was a moderate 15 percent, carrying that balance for one month could push your debt to $5,857.53.

[See: 7 Most-Missed Tax Deductions and Credits.]

When paying with a credit card makes sense. While using a credit card for your IRS payment has risks, there are some instances when paying with a card is not only preferable, but advantageous.

Zero percent introductory APR offers. Many credit cards offer a zero percent introductory offer on purchases for new card holders. This can be from six to 21 months, depending on the card. Tax payments are handled as purchases by the service providers. Taking advantage of an introductory offer allows you to split up your payments over the course of the intro offer without paying interest. This can be a good option if you are certain you can pay off your debt before the intro period ends. An alternative is to use a payment plan or installment agreement through the IRS.

Welcome bonuses. Many issuers offer welcome bonuses to entice new card members. These can include enough airline miles for multiple flights, hotel points for free night stays or a cash back lump sum. To earn a bonus, you have to spend a minimum amount. Paying your taxes can be a quick and easy way to meet the spending requirement.

Earn credit card rewards. Many credit cards offer points or cash for every dollar you spend with the card. Cash back cards are easier to calculate since the lowest fee is 1.87 percent, so any cash back above that is a profit. For miles and points cards, the value is more complicated. If spending $5,000 would earn you 10,000 rewards points — enough for an award flight or free hotel stay — it may be worth it to you. Before deciding, review your cards and decide which one will give you the highest return.

[See: 12 Habits to Help You Take Control of Your Credit.]

High-spend bonuses. Some rewards cards offer significant bonuses for cardholders who reach certain spending thresholds. This can be as low as spending $20,000 in one year for upgraded status at a hotel, or as high as $40,000 in one year for bonus airline points. If you think your normal spending, plus your IRS payment, would earn you these free flights, stays or premium services, it may be something to consider.

Bottom line. Look at using your credit card to pay your IRS bill as a luxury rather than a necessity. Alternative options, such as paying by check or electronic direct pay, are free. Paying with a debit card has a flat fee that tops out at $3.95. Both options are less expensive than paying with credit cards and they won’t impact your credit. Everyone’s financial situation is different, and you should review your personal finances to see which option is best for your needs.

More from U.S. News

8 Ways You Can Prepare Now for Next Year’s Taxes

9 Red Flags That Could Trigger a Tax Audit

A Checklist for Last-Minute Tax Filing

Should You Pay Your Taxes With a Credit Card? originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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