For millions of Americans who took advantage of a delayed deadline, it’s the least wonderful time of the year: Tax season.
While tax day typically falls in April, that was pushed until July 15. And that means the deadline to file taxes is just a week away.
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.
Will I Have to Pay Extra?
Let’s get this out of the way first: Paying taxes with a credit card isn’t free. 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 new card, then pay it off immediately with the money you have saved up to cover your tax burden.
For example, the Chase Sapphire Preferred Card offers a 60,000-point sign-up bonus after spending $4,000 in three months. The card has a $95 annual fee, which you’ll also need to consider.
But that sign-up bonus is worth at least $750 towards travel if redeemed through the Ultimate Rewards portal. Or you could use Chase’s new Pay Yourself Back feature to cover $750 in purchases at grocery stores, home improvement projects, restaurants, or even Target using points. And it’s potentially worth much, much more by utilizing some of Chase’s transfer partners.
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. After crunching the numbers on the sign-up bonus on the Preferred card, you would still be coming out ahead by at least $580 after paying the processing fee – and potentially much more. That’s a great deal.
Click Here to get more information about the Chase Sapphire Preferred Card.
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 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. If you can’t pay off the balance immediately, skip the credit card.
It also 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.
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, July 15, so you have just one more week to strategize and pay off your tax bill. With some luck, you can earn a big stash of points while paying Uncle Sam.