The pros and cons of paying your taxes with a credit card

WATCH: What is Plastiq?

Want to rack up some serious credit card reward points?

The Canada Revenue Agency is allowing online payments via credit card to be accepted through an online payment platform called Plastiq. For some Canadians, that’s big money on a credit card – think of the points!

Plastiq allows Canadians to make large payments via American Express, MasterCard, or Visa card to merchants who would previously accept only cash or debit or cheque, including the CRA.

There are definitely pros and cons to using Platiq to pay off your tax bill and you really need to ensure that using this platform is serving you well.

The Pros:

1. Points. If you have a wonderful rewards program on your credit card, paying a large tax bill with Plastiq will help you reap those rewards!
2. Convenience. Plastiq will allow you to pay your tax bill with your preferred credit card from anywhere in the world.
3. Grace Period: The grace period on your credit card is the number of days between the date your monthly statement is issued and the date your payment is due. Most credit cards have an interest-free grace period for new purchases of approximately 21 days. This can buy you some interest free time to get the money together to pay off the credit card before the end of the grace period to pay off the your tax bill on time before their late-payment interest starts accruing.

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The Cons:

1. The fee: Naturally, there is a fee for using Plastiq – generally 1.99 per cent– 2.49 per cent per transaction. The fees differ due to risk, acceptance, credit card types/brands etc.  So, you need to make sure that the fee you’re paying for the right to pay via credit card is worth it for the rewards.For example, if you owed $2000 in taxes and had to pay a 2 per cent fee – you’d actually pay $2040. So, you need to look at your credit card reward plan and see if the $40 in fee is generating more than $40 rewards for yourself. This may be tough to find.
2. The interest: If you can’t pay off  your credit card completely within the grace period, you should think again before you pay your tax bill via credit card. Most credit cards will have an interest rate of approximately 19 per cent. Once the grace period is over, you will be left carrying a potentially large balance on an expensive credit card and the rate you’re paying is likely higher than what the CRA would have charged.

If you file your taxes on time you will be spared the 5 per cent late filing penalty charged by the CRA on balances owing. If, however, you file on time but are still unable to pay your entire tax bill on time, the balance owing to the government will start accruing interest on the amount that you owe.

The CRA charges a prescribed interest rate that you can find here. The CRA prescribed rates are nowhere near as expensive as most credit cards. Therefore, if you can’t pay off your tax bill within the grace period, you’re better to call the CRA and work out a payment plan for the balance owing rather than putting the balance on the credit card. You’ll pay less interest

If used correctly and responsibly, Plastiq is a great way to pay your tax bill conveniently and can give you the opportunity to reap a ton of rewards points from your credit cards. Just make sure the rewards outweigh the fees and that you can pay off the balance within the grace period to keep it interest free!