It’s the least wonderful time of the year: Tax season.
The deadline to file taxes is approaching fast. And while there’s not much joy in paying a big tax bill, there’s a way to get something good out of it: Paying with a credit card.
There’s no one-size-fits-all answer to handling your taxes. Data suggests an overwhelming majority of people pay federal income tax bills using cash, and that may be the right choice for many. But in the right circumstances, paying with a credit card can be a boon for your stash of points and miles.
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.
What Fees Are Associated With Paying Taxes With A Credit Card?
Let’s get this out of the way first: Paying taxes with a credit card isn’t fee. But it can easily be worth it.
Processing fees for paying your taxes with a credit card will vary by the service provider. Per the IRS website, the current best deal for this service is offered by Pay1040.com, which offers a 1.87% processing fee (minimum of $2.59) to pay your taxes with a credit card.
They accept all major U.S. credit cards (as pictured below). The IRS lists two other websites that can process tax payments via credit card, but both have higher service fees and thus shouldn’t be used if you are considering going this route.
When Should You Pay Taxes with a Credit Card?
If you owe the IRS money come tax time, there are plenty of opportunities to get a good return on your payment, even with the 1.87% processing fee.
Paying taxes is an easy way to hit the minimum spend requirement for a big sign-up bonus on a new credit card. Charge it to your card, then pay it off immediately with the money you have saved up to cover your tax burden.
For example, the Chase Sapphire Reserve credit cards is offering a signup bonus of 50,000 Ultimate Rewards points after spending $4,000 on the card in the first three months. The Chase Sapphire Preferred, meanwhile, has a 60,000-point sign-up bonus.
Either way, that sign-up bonus is worth at least $750 towards travel if redeemed through the Ultimate Rewards portal. And potentially much, much more.
So let’s say you have an upcoming tax bill of $4,000. Using Pay1040.com, you would incur a fee of $74.80 ($4,000 x 1.87% processing fee) to use your card. Using the Chase Sapphire sign-up bonus discussed above, you would still be coming out ahead by more than $550 after paying the 1.87% processing fee. That’s a great deal.
Thrifty Tip: You can 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.
When You Should Not 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. If you can’t pay off the balance immediately, skip the credit card.
We also do not recommend using a credit card to pay taxes if you are not working towards a minimum spending requirement for a new credit card account.
It’s one thing to earn 50,000 points or more by putting the tax bill on your credit card. But if you’re just earning 1 or 2 points per dollar by paying with your credit card, you’re better off paying with cash. The fees associated with using the credit card will likely outweigh the points you’ll earn. So if you’re not working on unlocking that points bonus, it’s not worth putting your tax bill on a card.
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 sign-up bonus for your spend, it’s likely not worth it.
Federal taxes are due Wednesday, April 15, so you have a few months to strategize. That means you’ve got plenty of time to open the right credit card to make pay off your tax bill and earn a big stash of points in one fell swoop.