When To Pay Your Taxes With A Credit Card

Pay Your Taxes With A Credit Card

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Data suggests that an overwhelming majority of people choose to pay their federal income taxes in cash. There are situations in which paying taxes with a credit card makes sense, however this won’t be for everyone.

As with most personal finance topics, there is no one size fits all answer. The best option for you will depend on your individual financial situation. Below, I will discuss why you should pay your federal tax burden with a credit card.

 

What Fees Are Associated With Paying Taxes With A Credit Card?

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 who is offering a 1.87% processing fee (minimum of $2.59) to pay your taxes. 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 however they both have higher service fees and thus shouldn’t be used.

 

Current processing Fees for credit card tax payments

 

When Should A Credit Card Should Be Used to Pay Taxes?

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 reach the minimum spend requirement on any new credit card sign up bonus. 

For example, The Chase Sapphire Preferred and the Chase Sapphire Reserve credit cards are both offering a signup bonus of 50,000 Ultimate Rewards points after spending $4,000 on the card in the first 3 months of card membership. Depending on which version of the card you were to get, that sign up bonus is worth at least $625 towards travel if redeemed through the Ultimate Rewards portal.

If you had a tax burden of $4,000, using Pay1040.com you would be paying a fee of $74.80 ($4,000 x 1.87% processing fee). 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 #1: You can pay part of your taxes with a credit card and the rest with cash.

 

When You Should Not Use A Credit Card to Pay Taxes

Using a credit card to pay taxes for the purpose of earning valuable points and miles does not always make sense. 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.

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. Meaning, if you are earning 1 point per cent spent on your tax bill, you are likely better off paying your tax bill from your bank account.

 

Bottom Line

Paying your tax bill with a credit card offers a great way to meet a minimum spending requirement for a new credit card account. If you are not earning a sign up bonus for your spend, it is likely not worth it. With federal taxes being due April 17th, there is plenty of time to take advantage of current offers. Learn more about them by visiting our Top Credit Cards page.

 

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Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer.

2 Responses

  1. Infrequent Traveler says:

    Is it possible to use a visa gift card to pay? i wonder if it could make sense if done right.

    • Nick Serati says:

      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.

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