Can You Pay Taxes With a Credit Card?

Despite our differences, there’s something that we all have in common – the fact that we must pay taxes. The amount, of course, varies, as naturally, not all of us have the same income. Depending on how much one needs to put aside towards this mandatory expense, setting aside that much money at once can prove a substantial financial burden.

Pay Taxes With a Credit Card

If only we were able to pay taxes with a credit card. But wait – we are! The only question is, should we do it? There are plenty of factors to consider before you’ve given your credit card to the IRS. This article will attempt to cover them all to help you decide on the next course of action.

How the Whole Process Works

You aren’t making a direct payment to Internal Revenue Service (IRS) when using a credit card to pay taxes. IRS authorizes third-party companies to accept payments on its behalf, a list of which is available on its website.

Now, it’s important to mention that using a credit card for such an endeavor won’t come without a cost. These payment processors charge consumers a processing fee which tends to range between 1.87% and 2.35% of the amount paid. That means that for every 1,000 dollars spent on taxes using this payment method, approximately $20 goes towards fees. And when we consider that an average US citizen pays around 15,000 dollars in taxes each year, that means that if you were to cover them using a credit card, you would be looking at paying a surcharge of $300.

You wouldn’t be able to use just any credit card, either. In general, only those issued by the following companies are accepted:

  • Visa
  • MasterCard
  • American Express
  • Discover

Why Pay Taxes With a Credit Card?

If additional fees have discouraged you from paying your annual taxes using a credit card, let’s visit some common scenarios that suggest that doing so might not be such a bad idea after all. Read everything carefully before you’ve begun filing your taxes and covering the bill.

Earning Rewards

It’s not uncommon for credit cards to come with a reward points system in place. Often, those rewards can prove worth more than the fees themselves. For instance, certain cards offer 2% cashback on all transactions. That means that if a taxpayer had such a card and were to pay less than 2% on fees, they would have a slight surplus at the end of the day, or rather, the end of the year.

Getting a Welcome Bonus

Much like many cards offer their owners a chance to collect reward points, some of them come with an attractive welcome bonus. And because a tax bill is, generally, a substantial one, it might even be possible for a taxpayer to earn multiple welcome bonuses at once, thus possibly receiving hundreds if not thousands of dollars in return.

For instance, Chase Sapphire Preferred® Card holders can earn 60,000 points provided they spend 4,000 dollars within the first three months of usage, which translates to 750 dollars redeemable for traveling. Capital One Venture X Rewards Credit Card has a similar bonus system. Spending 4,000 dollars is also a requirement. However, instead of getting 60,000 points, holders get 75,000 travel miles.

Splitting the tax bill into two separate payments using two different cards could get you two separate bonuses. These welcome bonuses add to the regular cashback and reward points, meaning the earning potential remains high.

Taking Advantage of the No-Interest Period

Credit cards are known for having insanely high-interest rates. But then again, some come with a no-interest period. The issuer determines the duration of such a period but generally lasts no less than a year. Provided that you pay off the entire debt before the 0% APR has ended, it makes sense to pay taxes with a credit card like this one.

Crossing a Spending Threshold

Collecting reward points and acquiring a welcome bonus sound excellent, but so does reaching a certain spending threshold determined by the card issuer – and then getting rewarded for it! Credit cards often have different tiers. One can move from one to another by, naturally, making purchases. The more you spend, the higher your tier. And once you qualify for the next one, you can earn qualifying points redeemable for various prizes.

Should You Pay Taxes With a Credit Card?

By now, we have determined that you can use your credit card to cover the tax bills. But let’s return to the question raised at the beginning of this article – should you? Well, the answer largely depends on your circumstances.

While there are certain benefits to using a credit card as a preferred payment method for taxes, it makes no sense to use it for this purpose if you’re already drowning in tax debt. After all, the only thing you would be doing is getting into even more significant debt. In this case, you should steer clear of paying due bills with a credit card and look for tax relief companies to help you reduce debt. You’ll need to find the best assistance available, so make sure you carefully review your choices before picking the one.

In addition, if you believe you can pay off everything you owe within 180 days, IRS itself might be able to assist you. They offer a 180-day installment plan that costs absolutely nothing to set up. Unlike credit cards, the plan itself doesn’t harm one’s credit score (as long the installments are paid on time).

Now, if you are debt-free and need a short-term loan that comes with possibly no interest rate, or at least no interest rate for some time, it could be a smart idea to pay taxes with a credit card after you’ve applied for it. In the end, you might even earn something from it!

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