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What is this \"pay taxes\" business? I'm getting a giant refund back. The government really does look out for the working man!
Not really, I actually came within $100 (state+fed) of breaking even this year. Hooray DIY Excel tax forecasting model!
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But the IRS Payment Plans do not give you points/miles!
I'm probably going to have to pay a bunch this year. I'll probably just put it on my credit card so I can get the points/cashback and pay off the card right away (like I always do). Unless, of course, the IRS charges extra for paying by credit card.
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@DeltaTee: Yup. And, since the usual rule of thumb appears to be that earning miles is equivalent to 2.0-2.5% -- which looks about right to me -- I've always elected not to do it. If you've got a card that pays back more than that, and can pay in full immediately, go for it.
@DeltaTee: Which makes it pointless. They are charging you the processing fees businesses normally pay. Then will turn around and charge you monthly interest. Total scam.
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Do they charge an additional fee to use a credit card? I looked at doing this with my local property taxes (to get the reward points) and found that they charged several percent extra to pay with credit card, so it wouldn't be worth it.
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@nataku83: I felt dumb that it took my years to figure this out -- they do that because they fees/taxes/whatever are set by statute and they can't give a 1% cut (or whatever) to the CC companies. Even though it's clearly a convenience to the DMV if I renew online and paying their $1.50 convenience fee to use a credit card makes me crazy.
So I bet, yeah, there HAS to be an extra fee, unless they made a special deal with the IRS in the hopes they'd make it up on financing and interest.
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@Eyebrows McGee: There is definitely a \"convenience fee\" charged to use a CC. It was one of the main reasons I wrote the post, but then I left it out because I was reading about MySpace and sex offenders and got distracted.
So, yeah, CONVENIENCE FEE. I've updated the post. Thx!
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I've never understood people who have to pay taxes. If you do your witholding the right way you should break even or get a refund. If you make a profit on stock the smart thing is to set some of that aside to pay any taxes.
And I'd NEVER use a credit card to pay taxes.
@Starfury: Self-employed people don't have this mystical \"withholding.\" We pay out the behind every quarter--or submit a limb in April.
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@Starfury: I don't understand people that don't understand why someone would have to pay taxes. In certain industries, like media and entertainment, workers fill out an I9 which makes you an independent contractor for that project. No tax is withheld, therefore you have to pay them at the end of the year.
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@Mina_da_mad_child: yeah like my wife. It's either a quarterly payment of $2500 or a year end tax bill of over $10,000. I'm not a contractor so I just withhold more and dump the maximum into my 401k, with all my deductions it evens out.
...what do you mean my dog isnt a dependent!?!?!? He's like a son!
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@Starfury: I'm getting a federal refund but I'm actually going to owe taxes to the state this year. I don't know how that happened.
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@Starfury:
I like getting a big refund back every spring. Yes, I am letting the Government hold my money but if I had that extra money every month I would probably blow it on shiny crap I don't need. This way I can use my lump sum on something really fun, or invest it.
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@Starfury: Sometimes people get into a situation they don't totally understand and end up owing for a year. This happened to me, it was a large amount of money. I had to take the payment plan and really took a beating on it.
@Starfury: I'd rather owe then get a refund. Provided I keep enough in my savings account to pay it when it's due.
Let's say in january, I get paid $500. $200 of it should go to taxes. Now, I can either take give the $200 to the government right then and there, or keep the $200 and invest it for a year, then give it plus the tax on the interest from the investment to the gov't. I'd rather take the former approach.
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You just need to be careful - if you don't withhold enough over the course of a year (with the idea that you don't want to give the Gov't an interest-free loan), you can incur penalties.
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@Starfury: It is actually better to owe a little bit than to get money back. If you are getting a big refund at the end of the year you need to remember this is money you already earned and could have been using to invest in and earn even more money on. Instead the GOV has been holding onto your money making and making money (interest at least) off of it.
@Starfury: You really want to shoot for breaking even. I'd rather owe a little than get a refund because the IRS doesn't give you interest.
Wouldn't it be the best way to pay with a card with a good points plan, get your points for paying with the card, then pay it off immediately. Unless it comes out in the form of a cash advance.... Ideas?
1. How do you end up owing hundreds or thousands on taxes, constantly or not? Is it a workplace salary vs wage issue? Strange state tax laws? Investments? What? My parents have multiple investments including CD's and other accounts, they own a house including a plot of land in another state, and have standard commercial jobs. I don't believe they have received a cent from their state in years, but they ALWAYS receive money back from the Fed. They don't even do the illogical \"I'll let the Fed take even more money out of each paycheck in order to have a larger refund\" crap.
2. Who are these people on those scammy tax help sites who claim they had $345,765 in tax debt? Completely false stories or part of the above abnormal circumstances?
@BlackMage is doing the Time Warp agaaaaaaain!!!: I end up owing because I attempt to analyze my tax situation throughout the year and adjust my withholdings accordingly. If I think I might get a refund next year, I lower the withholdings. If I think I might owe more, I raise my withholdings.
Ask your parents what they're doing. You might be surprised.
@BlackMage is doing the Time Warp agaaaaaaain!!!: Some of us prefer not giving the gov't an interest-free loan by being over-withheld. Obviously, you don't want to be too under-withheld, either, or there are penalties.
@BlackMage is doing the Time Warp agaaaaaaain!!!: I started a job on a contract (freelance) basis in 2008. As a result, all my income was 1099-MISC rather than W-2. It's a requirement to pay taxes on your income quarterly throughout the year, despite the fact that you do not have automatic withholdings.
If you don't pay (or underpay--in my case intentionally) throughout the year, you can have to write a hefty check come tax time.
Credit card debt can be wiped clean via bankruptcy, but I'm pretty sure back taxes cannot, so this could be a way to convert back taxes into unsecured debt for someone who is close to declaring bankruptcy.
Otherwise, the \"convenience fee\" usually makes paying by credit card unattractive.
In my opinion, the reason folks put their taxes on credit cards is to gain a clean slate with the IRS. The credit card companies can't put you in jail for defaulting but the IRS CAN. Just a thought.
My concern with the use of credit cards is the ongoing debate about increasing threat levels of digital security. So, that's something to weigh.
Yes, there is an extra fee to use a CC. It's because the IRS farms the processing out to a third party. IIRC, it's about 2.5%, which can be hefty.
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@Ash78: It's because the IRS can't eat the credit card fees like a retailer. Taxes are set by law and they can't give what would amount to a discount by paying the CC fee themselves.
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I got the email from Chase. It pointed out that paying taxes would be a great way to get reward points.
Except I get 1% back on normal purchases, and the \"convinience fee\" for paying my taxes is around 2.3%.
You end up owing a bunch of money in taxes when you have unconventional earnings. In other words, you don't have a regular job that withholds. Also, it always cracks me up when people get so giddy about their big tax refunds. You do realize that a big refund means that you just loaned the government a bunch of money interest-free over the course of the year, and they're finally getting around to paying you back. Now, for someone who lacks the self-discipline to actually save, maybe it's a good thing, but you're really managing your money much better if you find you owe a little on tax day.
Also, it's worth mentioning that the IRS is actually one of the best institutions, commercial or governmental, when it comes to customer service. They're always happy to help you figure out what your correct taxes are when the regulations are unclear, with an actual human on the phone. And if you find you are unable to pay right away, or at all, they'll always work with you on a payment plan or even a partial forgiveness of your tax obligation.
@dogmatixx: \"always cracks me up when people get so giddy about their big tax refunds.\" It cracks me up a bit too, but this year I'm one of the big refund people. My withholding is correct, but the massive student loan interest deduction (massive in terms of my finances, that is) + lifetime learning credit for taxes I paid on tuition my job paid for = very sizeable refund. Sure, I could have used that several thousand $$ during the year, but in there was no way I could avoid paying it.
In retrospect, my financial brain is better now than it was last year, so I think my use of the refund will be wiser than whatever I would have done with it back then.
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@dogmatixx: I don't get giddy about having a huge tax return, but I do like not having to worry about paying anything. I'd rather give the government an interest free loan than to have to scramble to pay taxes.
I am one of those unfortunates that have had to pay $$, as my expenses were so much due to a divorce & lots of debt that I needed to have near nothing withheld for a couple years to get on the ball. One thing I did was to make a partial payment w/ the return. & then you get a notice that you did not pay the full amount. The second time you pay (about a month later after you get a letter) can also be short. but the second 'You screwed up' letter you get from the IRS you better pay the full amount. This allows you to essentially make it in to 3 payments over about 3 months w/ no fees for lateness or having to make a payment plan.
yeah, i don't think i've ever had a tax refund (at least not a big one), and it befuddles me when everyone gets all excited about theirs. i'm glad i'm not alone in that. i have always had stupidly complicated taxes, too--lots of independent contractor arrangements, plus i keep moving from state to state and having to file nonresident returns. aggravating.
As far as I know, you can get an extension from the IRS for filing, but if you expect to owe money, you have to pay by April 15.
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I payed mine via credit card so that JUST in case I don't get that free house I heard about I can do a chargeback!
I got one of these emails yesterday, laughed a little, then hit delete... the thought of using it to try and boost my Cash-Back Rewards did cross my mind.
@Rectilinear Propagation: That happened to me last year too. I was wishing there was a way the two entities could communicate. The state could get the money from the federal and then they could send me a check for the remainder.
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Just give them an IOU like california is giving me :)
The IRS charges for making a credit card payment. If you owe taxes to the IRS but cannot pay them immediately, you can arrange a payment plan. It costs $100.00 to set up and then you can pick how much to pay per month - drafted from a checking account. There may be a minimum payback period, there was no interest as of last year to do this. Been there, done that.
@HalenBabby: You did this the wrong way, I'm afraid. If you let the IRS know that you can't pay all at once, you can set up a payment plan. No threatening letter or need to come up with the remainder by the third installment that way.
The $100 set up fee for a payment plan is new. When I worked for myself, I never had the money to make the quarterly payments and as a result always wound up owing money to the IRS at the end of the year. All I did was send a letter with my 1040 outlining how much I owed, and how much I could pay each month and include the first payment with the 1040. The beginning of each month after that I received a bill from the IRS for the amount I said I could pay. I never paid a dime more than the initial debt. No setup charge, no interest, no fees, no credit cards with outrageous interest rates, and no problems.
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I'd love it if my husband (self-employed) had a single CC that he paid all business-related expenses with, including taxes. It would keep my blood pressure down and save him from having to \"guesstimate\" certain numbers.
Instead, we play an annual game of \"let's guess how much we owe Uncle Sam in April then slack on filing until October\". For the 2005 tax year, once all the bookkeeping was done, his \"guesstimates\" left us writing a check for $17,000. Last year pretty good - we only had to write a check for $2,500 after having paid $55,000 throughout the year...then the IRS sends us a refund for $8,300, because hubby forgot that he'd made an extra estimated tax payment during the year.
So, yeah, that pay-tax-on-CC scenario is looking pretty tasty right now.
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The sad part is, the people who are reading this site probably know better. It's those who don't that could use the advice and are probably getting F-ed.
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Pay the IRS what you owe but keep paying the credit card companies more?? No thanks.
Doesn't the IRS have payment plans? If you cant pay your taxes get a lawyer to help you.
@Stephen W. Daries: i was on a payment plan for 6k. interest rate was 6% - MUCH cheaper than a cc.
@Stephen W. Daries: er, i think that's pretty much what Chris said.