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When taxes are owed, they have to be paid and that means different payment options are welcome by Taxpayers. With a new payment method open to Canadian taxpayers, there are a lot of questions that are coming about regarding whether or not the method is a good idea.
Now Canadians that owe taxes can use their credit cards to make that payment. The credit card payment method also allows points to be earned on rewards cards for making the tax payments. However, the cost of this latest payment option may not be worth the payoff.
The new payment method is called Plastiq. It is a payment platform that allows taxpayers to use their credit cards to pay tuition, taxes, rent, and other expenses. To use it, you simply go to plastiq.com and designate a payee. After you designate the payee, you enter your personal details and your credit card number. After that information is given, the payment can then be submitted. The charge for doing this is 2 percent of the purchase amount.
The benefit that many see in this is that they are able to earn points on their credit card. However, credit card reward points are usually valued at one point for every cent spent. The Plastiq fee is double the number of points that you can earn. This means that using Plastiq to earn points is not necessarily going to make a lot of financial sense. It does make financial sense if you earn more than one point for every dollar spent.
Another exception is when a person needs that last push of spending to give them the points they need to redeem for a specific reward they want. They have no issue with charging $1,000 or $2,000 or the cost of doing so because they need the extra points to get to the threshold for that discounted airline ticket, gift card, or that free dinner at a premium restaurant. Using Plastiq to make their tax payment can help them do that. You do have to ask yourself if the reward is worth the cost of using Plastiq to make the payment. To do that, simply figure up two percent of the transaction. If the transaction is $2,000, the fee is going to be $40. There is also the interest on that transaction if it is not paid off before the credit card statement date.
However, the sign-up bonuses for reward credit cards may help offset the cost of using Plastiq. For instance, a card may give cardholders 50,000 points if they spend a specific amount over the first few months of card ownership. This means that every dollar spent is worth 50 points, which makes the two percent purchase price a great deal. The catch is that the cardholder has to be a new cardholder of a rewards credit card account.
Tax Payment Options
H&R Block was a company that teamed up with Plastiq so that clients could have another choice when making their tax payments. H&R Block believes that it will appeal to those Canadians who want to collect points for rewards. They have made a point to tell their clients that writing a check to the Canada Revenue Agency is not going to earn any points like using a credit card via Plastiq to make the tax payment.
The option also gives Canadians more time to pay their tax obligations. This does not mean that they are allowed to pay their tax payments later. Instead, they have until their credit card payment due date to avoid feeling the impact of the payment. Some individuals may find this to be a way to better manage their cash flow. Because they are not required to pay more than the minimum payment on the credit card, they do not have to pay the tax obligation at once. This can benefit some who may simply not have the money to pay their taxes in one lump sum. As it stands, many Canadians are living paycheck-to-paycheck, just making ends meet and that means they can't afford to pay a lump sum tax payment. However, it also means that they cannot afford the interest on a credit card. That is why it is important to weigh the options against one another before making the final decision.
There are those that disagree with H&R Block regarding the use of Plastiq for paying taxes by credit card. The opposition says that the two percent fee negates practically any benefit that is received by using the credit card to make the tax payments. Yes, it is convenient. However, experts say that tax payments can be made online through major financial institutions, as well as via the telephone. For those that do use Plastiq, it is advised that individuals pay off the credit card balance before the new statement cuts so that no interest is charged on the tax payment amount. If the tax payment is high, then the interest will be high.
Financial experts state that cardholders should educate themselves before they try making a payment via Plastiq. It is best to look at the terms of the credit card to check the interest and the rules for earning points. Sometimes cards have specific rules for how points are earned, so you want to make sure the tax payment transaction will earn points.
It is also important to consider that reward cards can have a higher interest rate when the balance is not paid in full. This means that a lot of money could be paid in interest. The money being paid on interest could go toward something else, such as a necessity or a savings account.
In the end, whether or not it is a good idea to use Plastiq to pay your tax payment depends on your credit card, how much you are willing to pay for convenience, and your overall financial situation. After this evaluation, you can determine which payment method is best for you.
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