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Most people just enjoy the convenience of not carrying cash so they carry plastic and pay off their credit card bills immediately. Others carry a Visa or MasterCard because of the necessity of using a credit card for certain transactions like renting a car, when merchants or service providers are reluctant to do business with someone who does not have their own credit card. But for the vast majority of people who have credit cards, they also use them to postpone payments for purchases.

Instead of using a layaway plan they just charge it to their plastic and then pay off the balance over a period of months or even years. This is especially useful for people who are making a relatively large purchase, because in that case the credit card becomes an instant way to get a consumer loan. Rather than going to the bank and applying for loan to cover the expense, the cardholder just charges it and then figures out a way to pay off that balance when the time comes.

For quite a few years the IRS has let taxpayers use credit cards to pay their taxes, too, and that is often a really tempting way to use a credit card because most people have a hard time coming up with a large chunk of cash at tax time. But while the idea of charging tax payments to a credit card is appealing, there are reasons why it may not also be such a smart and financially prudent method.

One reason that is at the top of the list is that when you pay the IRS with a credit card, you automatically get hit with an extra fee. Normally when you make a payment with a credit card to a merchant, for example, the merchant ends up paying the credit card company a merchant fee. That fee is built into the cost of doing business, and it typically runs in the neighborhood of 2-3 percent. So although you may not be aware of it, every time you spend $100 the retailers you do business with pay the credit card company about two or three dollars. But the IRS is a government agency responsible for collecting revenues from taxpayers, not giving money to credit card companies. So there are laws that prevent the IRS from paying any kind of service charges to your credit card company. Since that’s the way it works – and since credit card companies still want their share of the transaction – you wind up having to pay it yourself in the form of an administrative fee.

The cost is not much compared to what you’re paying, but you need to be aware of it because it does increase the cost to you. If you pay $5,000 in income tax using a Visa card, for example, be sure to note that you’ll also pay about $110 in additional credit card fees. You pay that even though you might pay your entire credit card bill off at the end of the month without carrying a balance forward – but anyone paying taxes with a credit card will probably also plan on carrying the balance for at least a few months. So that means you also have to figure in the cost of servicing that credit card debt by paying interest. If you pay a pretty high interest rate that could wind up costing you a bundle, and if you make a late payment along the way you could find yourself paying a much higher rate than previously planned.

Then there are those clever taxpayers who just want to pay their taxes with a credit card to earn extra points or rewards. If you have a rewards card of some kind, this might be a really easy way to rack up some fast points or get some big perks. You charge your big IRS bill, earn the rewards, and then pay off the credit card balance right away to avoid interest payments. But think twice – and study your credit card agreement carefully – before rushing headlong into this kind of strategy because many card companies are hip to that trick. Some used to give you five percent cash back, for instance, but now they only give you one percent. Since you’re paying almost three times that much just in the merchant fee, you wind up losing money on the deal.

A recent article in USA Today, for example, explained that American Express lets its cardholders pay taxes with the credit card, but that for every dollar you pay in taxes you have to forfeit 200 rewards points. So rather than earning easy points with that kind of strategy you would wind up having the whole think backfire on you. Pay a tax bill of $5,000 and you’ll give up a million rewards points.

But if you do a good job of managing your finances and you are really strapped for cash at tax time, it might still make sense to you to postpone the payment a little while by using your credit card. You avoid getting in trouble with the IRS and if you pay off the credit card within 2-3 months you don’t pay too big of a price for that added convenience. Keep in mind that carrying a big balance might lower your credit rating, however, so you might be better off trying to figure out another way to come up with money needed to pay those taxes on time.

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