Man working on his 2023 taxes

Deciding on a Tax Debt Repayment Strategy: Credit Card Cash Advance vs. IRS Payment Plan

Question: I owe the IRS $8,000 in tax for my 2022 return. I don’t have the cash to pay for it. Would it be better to get a 180-day payment plan with the IRS or use a credit card cash advance with a 0% APR through June 2024? (I have excellent credit, fortunately, and often get these offers). The cash advance fee is 3%.

Shane W. in Elko, NV

Answer: Each option has its benefits and potential risks, let’s examine it closer.


Hello Shane,

Great question, and thanks for reaching out. Please note that we are not CPAs and do not provide tax advice. The following analysis highlights the advantages and disadvantages of each option in terms of interest rates, fees, and potential credit risks. We strongly recommend consulting with a financial professional or tax advisor for personalized guidance tailored to your specific situation before making any decisions.

Each option has its benefits and potential risks.

The credit card cash advance has a great 0% promotional interest offer. Qualifying is not guaranteed, but if you have excellent credit, it should not be an issue. One downside to the credit card option includes the 3% fee, which equates to about $240. If you take longer than the promotional period to pay off the debt, the average credit card interest rate is in the 18% range. That’s four to five times higher than the IRS would charge you.

With the IRS, you would have greater flexibility to choose the length of your repayment terms.  An IRS payment does not end up on your credit report, so it neither helps nor hurts your credit score.

Let’s compare 6-month repayment periods then 12-month repayment periods.

For a 6-month repayment period through your credit card, assuming the 0% APR promotional period is 6 months, you could pay it off interest-free with $1,333 monthly payments. With the transfer fee, your total would be $8,240.

At the typical IRS interest rate (calculated by adding 3 percentage points to the federal short-term rate, which is currently around 1.5%), you would likely pay a 4.5% APR through the IRS. Assuming you paid it off in 6 months, your monthly payments would be $1,367, and your total repayment around $8,200. That’s just slightly less than the credit card option.

For a 12-month repayment period with the credit card offer, again assuming a 6-month 0% APR promotional period then followed by 6 months at 18%, your repayment would equate roughly to $8,200 plus the $240 transfer fee, for a total of $8,440.

Through the IRS, your monthly payment might fall somewhere around $683, totaling $8,435 after 12 months. Over a 12-month period, there seems to be very little difference between the two options, finally.

Any repayment beyond 12 months, though, would highly favor the IRS repayment plan because the credit card interest rate is so much higher after the promotional period ends.

Overall, both options for paying off the tax debt in a year or less have their pros and cons. While some consumers may prefer to pay off their debt using a credit card cash advance, others may feel more comfortable setting up a payment plan with the IRS. Regardless of the option you choose, it’s important to stay on top of your payments and make them on time to avoid any negative consequences. By carefully weighing the benefits and risks of each option, you can make an informed decision and successfully pay off your tax debt in a way that works best for you.


Todd Christensen

Education Manager and Facilitator of the Money Fit Academy

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