There’s nothing more certain in life than death and taxes. It always hurts to see how much you would have brought home if it weren't for taxes – but believe it or not, there’s a bright side to all this.
What do I mean? Your annual income tax bill could be your ticket to earning valuable credit card points and airline miles.
While paying federal income taxes the old-fashioned way (with cash) will no doubt be easiest for some, those who are willing to do the extra work (and pay the nominal fees) can score a bunch of points and miles by paying taxes with a credit card instead. With Tax Day (April 15) quickly approaching, now is the time decide whether or not paying with a card (and which one) makes sense for you.
We'll run through the basics of paying your tax bills with a credit card, and when it might make the most sense to do so.
Read next: 4 Credit Card Myths You Should Stop Believing
Will I Have to Pay a Service Fee?
Let's get this out of the way: Paying taxes with a credit card isn't free. But it can easily be worth it if you play your (credit) cards right.
Processing fees for paying your taxes with a credit card will vary by service provider. According to the IRS website, the current best deal for this service is offered by payUSAtax, which offers a 1.82% convenience fee (minimum $2.69 fee) when you pay taxes with a credit card. This is down from the previous year's lowest processing fee of 1.85% meaning there's never been a better time than now to pay your taxes by credit card.
Compare that to a 1.98% or 1.87% fee when using services like acipayonline.com or Pay1040. While a 0.05% savings by using payUSAtax might not sound like a big deal, it can make a difference if you owe a decent amount of money come tax season.
And since all three services accept major credit cards from Visa, American Express, Discover, MasterCard, etc. payUSAtax should be your choice as the fees are simply the lowest.
This changes from year to year, so you will always want to check the IRS website to see whose fees are the lowest. And considering the fees you will find to pay with a credit card for other transactions, paying less than 2% on your tax bill is a pretty solid deal, all things considered.
When Should You Pay Taxes with a Credit Card?
If you owe the IRS money come tax time, there are some worthwhile opportunities to get a good return on your payment – even with paying the 1.82% processing fee.
And the absolute best way to do it is by putting your tax bill on a brand new credit card to earn a big welcome offer points or miles bonus. It's one of the easiest ways to hit the minimum spend requirement on a new credit card, depending on the size of your tax bill. Charge it to your new card, then pay it off immediately with the money you have saved up to cover your tax burden.
For example, the *venture x* is out with a welcome bonus offer to earn 75,000 Capital One Venture Miles after you spend $4,000 on your card in the first three months of card membership. That bonus alone is worth a minimum of $750 – or potentially much more when using Capital One transfer partners.
Let's say you have an upcoming tax bill of $5,000. Using payUSAtax you would incur a fee of $91.00 ($5,000 x 1.82% processing fee) for using your card. But because the Venture X earns 2x miles on all purchases, your $5,000 tax payment would earn you 10,000 Capital One miles worth a minimum of $100 towards travel (more than the fee). And that's not even taking into consideration the huge sign-up bonus you'd earn for meeting the card's minimum spending requirement.
Talk about a win-win!
Learn more about the *venture x*.
A few American Express credit cards could be another strong option – especially if you can get a whopping 150,000-point bonus on *amex platinum* via CardMatch or from a friend's referral link. The same goes for the *amex gold*: If you can get a big welcome offer through CardMatch or a personal referral link, using either of these cards to pay your taxes would be a no-brainer as the value of those points easily outweighs the extra fee when paying taxes with a card.
Read more: How to Get Massive Amex Platinum & Gold Bonus
Thrifty Tip: You can also pay part of your taxes with a credit card and the rest with cash. That means you can put just enough to meet a minimum spending requirement on your credit card and pay the rest with cash without paying a fee.
If you can be financially responsible with a new line of credit, paying your taxes with a credit card makes the most sense when you are working towards a minimum spending requirement on a new credit card. It will simply give you the best return on your spending and help justify paying a 1.82% fee to pay your taxes. Earning just 1x or even 2x points per dollar on one of your existing credit cards probably isn't worth it.
Make sure to check out our Top Credit Cards Page to see all the best current offers.
When You Shouldn't Use A Credit Card to Pay Taxes
We love points and miles, but it won't always make sense to use a credit card to pay taxes.
For example, if you carry a balance on your credit card, the interest you’ll pay will vastly outweigh the value of any credit card rewards you’d earn. We do not recommend paying your taxes with a credit card in this situation. Instead you'll be better off putting any extra money towards your outstanding card balance and avoiding any additional debt.
But beyond that, it generally won't make sense to use a credit card to pay taxes if you aren't working towards a minimum spending requirement for a new credit card account. Credit cards simply don't offer enough points when paying your taxes to make it worth the fee unless it's earning you a big welcome offer bonus.
You may also want to reconsider paying taxes with a credit card if your rewards aren't enough to offset the processing fee. It's one thing to use a card that earns 1x points on purchases if it also means you're getting a big bonus. But if you're just using a card to pay taxes just for the points earned on spending, 1x won't cut it: You're better off paying with cash. The fees you'll pay when using the credit card will likely outweigh the points you'll earn. There are exceptions to this, of course. But it's a good rule of thumb.
So if you're not working on unlocking a big points bonus, your card only earn 1x points on everyday purchases, or if you won't be able to immediately pay off your card's balance in full, it's simply not worth using a credit card to pay your taxes.
Can You Pay State Taxes with a Credit Card?
In addition to paying your federal tax bill with a credit card, most states that collect state income tax will also allow you to pay your state income taxes using a credit card. However, the payment processors will vary by state, and sometimes, the fee will be higher than what you pay for your federal tax return.
In Minnesota, paying your taxes with a card incurs a 1.25% fee for debit card transactions and a 2.15% fee for credit cards. In this situation, it probably wouldn't be wise to use a credit card for your state income taxes if you're simply planning to earn points from the spending. Even cards that earn 2x points (or miles) mean you'll be on the losing end after paying the processing fee. Again, there are times where this will make sense, but in most cases you'll be better off paying the old fashioned way.
However, if your state tax bill is large enough to earn another welcome offer bonus, that could change the equation.
Thrifty Tip: Mastercard has an excellent resource on its website detailing the best service providers for paying your state tax bill with a credit card in each state.
How to Pay Your Taxes with a Credit Card
If you're a small business owner or have any sort of 1099 income, paying estimated quarterly and annual income taxes is probably quite routine. Instead of mailing a check or paying with ACH transfer, you can instead choose one of the IRS's trusted payment processors to make your payment online with a credit card.
For those with W-2 income, paying taxes with a credit card will likely take some advanced planning to get it right.
Starting with the basics, W-2 workers have a certain amount of taxes withheld from each paycheck by their employer to pay the IRS. The amount depends on how much you earn and what information you provide on your Form W-4. Besides income, your withholding amount will depend on whether you're single or married, any dependents you can claim, additional income sources, deductions, and more.
If you typically receive money back from the IRS (a tax return), that means you're already overpaying Uncle Sam with the regular withholding from your paycheck. This isn't necessarily a bad thing as it ensures you're paying your fair share of taxes and getting a return can feel kind of like a bonus … but it's not great for those looking to earn points and miles by paying with a credit card.
If you plan to pay with a credit card, you'll have to modify your withholding and reduce the amount of taxes your employer takes out of each paycheck. The best thing to do is use the IRS Tax Withholding Estimator to determine how much you will owe after submitting a new form. The tool will also help you figure out how to fill out your new Form W-4 to appropriately withhold less income for the purpose of paying later.
As soon as you've determined how much you owe, you need to have a solid plan on when to pay throughout the year. It's important to stay organized, especially if you plan on paying on a quarterly basis. As we're not tax professionals, we highly suggest you consult with one when in doubt as taxes are serious business.
Once you are at this stage, you'll go to the IRS website to make your payment quarterly estimated tax payments, as well as your annual payment. If you don't already have an ID.me account with the IRS, you'll need to create one to get in and view your secure tax records. From there, it's as simple as selecting “Make a Payment” from your home screen and choosing your payment method.
Note that paying by card will take you to an external website. This can be a little uneasy at first but so long as you follow these steps, you'll be presented with the trusted payment processors that work directly with the IRS. At the time of publication, those processors are payUSAtax, Pay1040, and ACI Payment, Inc.
Bottom Line
Paying taxes with a credit card can be a great way to meet a minimum spending requirement for a new credit card account. But if you're not earning a welcome offer bonus for your spending, you'll need to run the numbers for yourself to decide.
Federal taxes are due Monday, April 15, so you still have a couple of weeks to think about your tax bill, and consider opening a new credit card to earn points on an otherwise painful payment. With a proper strategy, you can earn a big stash of points or miles while paying Uncle Sam.
Is it possible to use a visa gift card to pay? i wonder if it could make sense if done right.
You certainly could, but you would only be able to pay $500 at a time. Your fee to buy the gift cards is not much less than using the Pay1040.com service I mentioned above. Depending on the size of your tax payment, this could be much more work than it is worth.
It should be noted that if you have a 2% cash back or equivalent points card you actually come out ahead even paying the 1.89% fee. Therefore, there are plenty of situations it should make sense to pay via credit card.
Even though this original comment is old, just to add this is what I did. New homeowner. Didn’t realize the taxes were due. So just used my 2% cashback card. But will be prepared better next time.
Be sure to re-publish this again on, like, President’s Day weekend and April 1
(sort of like HBO showing movies more than once a month)
so that those preparing later in the season can get inspired…
If you self file through TurboTax, can you still pay via payUSAtax?
Yes, you can.
I have had trouble with my Chase cards the IRS payment website shows a error
Chase says it was never attempted so they can’t help me
anyone else have this issue