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Tax payments by plastic doubly rewarding
"Giving card members as much value in return is always important," says Beaupre. "Certainly paying taxes is a major event for most people, so making the process more convenient for them by enabling them to use their card and rewarding them is really valuable."
Paying by card: potentially pricey
But paying this way is not always a good idea.
"We think it's a bad thing," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. "The only time it's a good idea to pay your income tax with a credit card is if you have no other way whatsoever to do that and you do it with the knowledge that the interest rates are going to be exorbitant compared to other ways of getting the money."
The interest rates of many consumer cards can run as high as 30 percent, says Jones. That's risky enough, but when consumers find themselves in debt on several cards simultaneously, it's a prescription for disaster.
"The risks are high because, if a consumer defaults on one of their credit cards, it affects all the rest of them, so their interest would go up across the board," he says. "It's not just that one card can cause trouble, it's the whole portfolio of credit cards that can get them in serious trouble."
Those already in dire financial straits who think they can dodge their tax bill by putting it on plastic before declaring bankruptcy are in for a rude awakening, says Jones.
"There are several things that can't be discharged in bankruptcy, and one of them of course is your tax bill, along with child support, alimony payments and student loans. A court would look badly upon a credit card bill to pay taxes and then a declaration of bankruptcy behind that. I suspect they would make that bill nondischargeable."
How do you know when you've reached debt's danger zone?
"We always say that if a consumer is making minimum payments on their credit card bill for more than two months in a row, that is a serious danger signal and they ought to start looking for help," he says.
By all means, always file your tax return; it's a crime not to if you owe money to Uncle Sam. But Jones recommends steering clear of
high-interest refund anticipation loans that might set you up for a fall should your whopping refund not materialize. Better yet,
adjust your withholding level to avoid the April windfall altogether.
Jones urges consumers to not fall prey to promotions or incentives of any kind that could potentially dig them deeper into debt.
"The savings rate in this country is now -0.5 percent, so people are on average spending more money than they make," he says. "All it takes is for the washing machine to go out to put them right over the edge."
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