Camila Johnson
It’s not something people usually associate together but it is true that taxes in most countries can indeed be paid with a credit card. However, that’s the short answer and tends to simplify the situation a bit too much. While it is true that a credit card can be used to pay your taxes, here’s a look at what exactly that might entail and whether or not it’s a good idea to do it this way.
Exploring Payment Gateways and Processing Fees
When you decide to pay your taxes with a credit card, the transaction typically goes through a third-party payment processor approved by the relevant tax authority. This can differ from place to place and is proving more popular as other industries lead the way with online payments—showing the path forward for services like taxation to follow suit.
Web-based services have become more popular than ever in modern times. With so many activities available online these days, this opens up new tax challenges since even income earned through remote work services and online gambling winnings can be taxable. A growing trend worldwide now is people looking for a listing of the fastest payout casinos. These online gambling portals are leading the way in terms of evolving and implementing speedier payment methods.
According to editor Victor Arum, in places like New Zealand where iGaming has grown extremely popular, players’ payouts can now be processed in a matter of hours rather than days. However, players should be aware that their winnings need to be declared for tax purposes: New Zealand-based players are now required to pay 29% tax on gambling winnings exceeding $449. The good news is, if players are accustomed to using a credit card to pay for their iGaming accounts, the process shouldn’t be much different if they use their credit card to pay their taxes.
For the USM the IRS lists several payment processors on its main website for people to use. While credit card functionality is catered for, these payments are still routed through online payment portals. These processors charge a fee, which can actually end up being quite high depending on how much tax is being paid.
In fact, this fee usually ranges from 1.87% to 1.99% of the payment amount. That may not seem like much. However, if you think of it from another perspective, it’s almost like another tax you have to pay on the taxes you’re paying. That’s because the upward scale it uses actually punishes taxpayers who pay more taxes.
For this reason, it’s important to always check the latest fees applicable on the relevant website or with your local tax ‘authority to get the most accurate information. If you don’t you may not be fully aware of just how much of an added expense you’re putting yourself through just by choosing to pay by credit card.
Decide If It’s Worth It
Of course, it’s tempting to pay by credit card. This method provides convenience, especially if it’s a large tax bill and you don’t have enough cash in your debit account. However, if it can be avoided, it’s better to use another method. Aside from the fees, it must be kept in mind that, given the nature of a credit card, it’s like an expense you pay twice.
This is because the first time, you pay by incurring the cost of it on your credit card, meaning later you still have to pay it back to your credit provider. However, to add insult to injury, paying back your credit provider attracts an interest charge too—meaning now you’ve incurred a second expense just for using your credit card to pay your first expense.
The Cost-Benefit Analysis of Paying Taxes with Credit Cards
The decision to pay taxes with a credit card should include at least some thought along the lines of a cost-benefit analysis. This should factor in the primary costs which will include the fee charged by the credit card company or the payment processing company, the revenue service, or all of them. It should also cater to the potential interest charges if the credit card balance is not paid off in full.
If you are a fortunate enough taxpayer who can pay off your balance immediately, then using a credit card might very well be a savvy financial move. In such a situation, doing so can earn you rewards on your card and save you time through its convenience.
However, if you know it will take you a while to pay that balance off on your credit card, the interest costs could make this option more expensive than alternative payment methods like direct debit or electronic funds transfer. Unfortunately, large tax payments can also affect your credit utilisation ratio—a key component of your credit score. The higher your credit utilisation is, the more likely your score will be low.
In the event of you ever missing payments this factor can then drastically affect how easy it is to get your credit score back to good health as it’s a factor that counts against you. A high utilisation ratio can also temporarily lower your credit score, which is an important consideration to keep in mind.
The Future of Tax Payments and Technology
No matter how inefficient or backward state service may be in other areas when it comes to revenue collection, this is usually strictly adhered to, has the backing of the court system, and runs like a well-oiled machine most of the time. As the key component of government revenue, without it, most governments wouldn’t be able to function properly, if at all.
This is also why most revenue services always look to keep improving their services and collection methods, especially for those who want to pay their taxes. Whatever improvements come in the future, while it is possible to pay your taxes with a credit card, this isn’t actually recommended unless you have a choice between that or not being tax-compliant.
