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This article was last updated Feb 04, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
As tax season approaches, you may be looking forward to a potential refund or dreading owing money to the IRS. If you struggle with the latter, you may wonder if you can pay taxes with a credit card.
Turns out, while you can pay taxes with a credit card, the next question is, should you?
“Paying taxes with a credit card might sound like a good idea for folks chasing rewards points and miles, but most of the time, the math doesn’t work in your favor,” said CompareCards.com Chief Industry Analyst Matt Schulz. “That’s because all the extra fees and costs involved with the transaction can often outweigh whatever rewards you might receive.”
However, if you’re in a pinch, paying the tax man with a credit card can be done. We’ll explain the pros and cons of paying taxes with your credit card so you can decide what the best option is for you.
Earn rewards on payments. If you use a cashback or rewards card to pay your taxes, you can earn cash back, points or miles. But, keep in mind there’s a processing fee — anywhere from 1.96% to 3.93%, depending on which service processor you use — associated with paying taxes with a credit card, so you may only break-even, or even wind up pay more in fees than you’d earn in rewards.
Help reach minimum spending for a sign-up bonus. Most sign-up bonuses have minimum spending requirements that can be as high as $5,000. Since you’ll need to spend the required amount before you can earn the bonus points, miles or cash back, paying taxes with a new credit card can help you get there quicker if you’re willing to sacrifice paying a fee for doing so.
Benefit from special financing. Many cards offer intro 0% APR periods on new purchases, so you can charge your taxes to a card offering no interest for up to 15 months as long as you’re comfortable rolling in the processing fee.
Convenience of paying taxes online. Paying online is quick, and you can receive instant confirmation that your payment went through. Know that you can also use your debit card (for a fee ranging from $2 to $3.95, according to the IRS) or for free directly from your bank account.
Processing fees. When you pay your taxes with a credit card, the payment processor will charge a fee. The fee varies by processor and is currently 1.87% to 3.93% of the payment with a $2.50 to $2.69 minimum, according to the IRS. If you plan on paying with a high-interest, non-rewards card or a card that only offers 1% cash back per dollar spent, then it doesn’t make sense to use a credit card since the fee outweighs the rewards.
Here’s the breakdown for each payment processor:
- PayUSAtax.com: 1.96% fee, minimum $2.69
- Pay1040.com: 1.87% fee, minimum $2.59
- OfficialPayments.com/fed: 1.99% fee, minimum $2.50
The fees are higher if you decide to pay with an integrated IRS e-file and e-pay option:
- PAY1040.com/SpecialOffers/TurboTax: 2.49%, minimum $3.95
- Fileonline.1040.com: 2.35% fee, minimum $3.95
- FileYourTaxes.com: 3.93% fee, minimum $2
Interest charges on unpaid balances. If you use a credit card to pay taxes, make sure you pay your balance in full before the due date to avoid interest charges. If paying in-full isn’t possible, consider using a card offering an intro 0% APR on new purchases or transferring your debt to a balance transfer card. Just know, many balance transfer cards charge a 3% to 5% fee per transfer, but there are no-fee balance transfer cards available.
Potential negative impact on your credit. Using a high percentage of your available credit — known as credit utilization — can have adverse effects on your credit score. Credit utilization makes up 30% of FICO scores, and the closer your balance is to your credit limit, the more harm done to your credit score. When you pay a big tax bill with a credit card, you can risk having high credit utilization.
For example, if you have a $2,500 tax bill and a card with a $5,000 credit limit, paying your taxes with your card would make your utilization high at 50%, provided you have no other balance on the card.
Limitations. Not all IRS tax forms are eligible for credit card payments, so you may not have the option to pay with a card.
Now that you’re aware of the potential benefits and drawbacks of paying taxes with a credit card, you should be able to decide if taking on added risk is worthwhile. If you have a good payment history and plan on meeting a rewards card’s minimum spend or putting the bill on a 0% interest card, paying with a credit card can be an OK choice. But, if your credit score isn’t the best and you can’t afford any mishaps, it may be better to explore a payment plan with the IRS or finding an alternative source of cash.
The fees mentioned in this article are accurate as of the date of publishing.
Worried your cashback rewards may get taxed? You can’t get taxed on cashback rewards from your credit card.