Debt Shield Cautions Taxpayers Against Charging Taxes

Executives at Debt Shield, a Maryland-based debt settlement firm, are urging taxpayers to resist incentives that encourage them to pay taxes with their credit cards.

Major credit card companies are offering points, miles and other rewards to taxpayers who charge the taxes they owe to the IRS. Several credit card issuers are working with airlines to award extra miles for every dollar of taxes paid with credit. Other companies are tempting taxpayers with cash-back rewards.

Mark Baylis, president of Debt Shield, said that taxpayers planning to pay their taxes with credit cards should be aware that the service providers that process the transaction charge a fee of 2.49 percent of the amount owed. For example, if you owe the IRS $1,800 in taxes, you will pay the service provider an extra $44.82 to use a credit card.

“The expensive fees, interest rates and potential penalties that credit card companies charge often negate any gain cardholders receive from promotional incentives,” Baylis cautioned. “It appears that credit card companies are selling the concept that it’s financially responsible to charge your taxes, but taxpayers should rethink such a choice, especially when the IRS already offers an installment plan option.”

According to data provided by the IRS, about 1.5 million people paid taxes with credit cards in 2005, which was a 54 percent increase from the previous year. This number is expected to increase further because this is the first year the IRS is allowing businesses to pay taxes with credit cards.

Baylis also warned that the default interest rates, Universal Default policies and expensive penalty fees credit card companies charge their customers make paying taxes on plastic an even less prudent choice. Default interest rates as high as 29.99% are applied to an account balance if the cardholder makes one late payment. Over 40 percent of credit card banks use the highly controversial Universal Default policy to reset a cardholder’s interest rate to as high as 27.99 percent if the cardholder is late paying another credit account. Penalty fees for paying late or going over the account’s credit limit are often as high as $39 and account for over 30% of credit card company profits.

“If you choose to use your credit card this tax season, read the fine print that accompanies any special offer and develop a plan beforehand to promptly pay it off,” said Baylis. “In the long run, taxpayers who put their taxes on plastic will most likely pay a lot more in fees, penalties and interest rates than they would pay if they simply took advantage of the IRS installment plan.”

Many state tax revenue offices also allow taxpayers to pay taxes by credit card.

About Debt Shield, Inc.

Debt Shield, Inc., is a debt settlement company dedicated to helping consumers resolve their unsecured debt through mutually agreeable and discounted lump sum settlements in consideration of legitimate financial hardships. By helping consumers avoid bankruptcy, Debt Shield provides a service for both debtors and creditors. For more information about Debt Shield, call 1-888-397-7546 or visit the website at www.debtshield.com.