Credit cards are becoming more common for use in payment of taxes. With the rapid increase in electronic filing of tax returns, online credit card payments have increased as well. Nearly 70% of 2010 personal income tax returns were filed electronically. By 2012, the federal government hopes to increase online filing to 80% for all tax returns. When the electronic filing has been done and there is tax to pay, it is convenient and even encouraged to pay by credit card.
Convenience of credit card tax payment comes at some cost. The government uses third party companies to process payment in most cases and a “convenience fee” is charged to the taxpayer for the service. The IRS has a webpage entitled “Pay Taxes by Credit or Debit Card” with information on how to do just that. The IRS website suggests that fees for the card payment range from a low of 1.9% to a high of 2.35%. The additional fee is included in the transaction at the taxpayer’s expense. Most state and local governments will accept payment through such a company.
It costs extra money to pay tax with a credit card and this is reason enough for many people to avoid this method of payment. If the payment is made without the intent to repay the creditor it is fraud and not dischargeable in bankruptcy for that reason. Even a pure heart and empty head will not convert a non-dischargeable tax into a dischargeable credit card debt.
Finally, two new statutes were added by Congress in 2005 to protect the credit card banks that fund tax payments. Under these new provisions, a loan used to pay tax that is or may become dischargeable with the passage of time, becomes non-dischargeable under 11 USC §523(a)(14) and 11 USC 523(a)(14A).