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It’s that time of year again. Tax season is upon us — and if you’re part of the 27% of taxpayers who expect to owe money this year, it’s time to figure out how you’ll pay.
What if you paid your tax bill with a credit card? On the surface, it seems like an easy way to rack up some rewards — and avoid paying the entire bill upfront. But is it really a smart financial move or just asking for trouble? Here’s what you need to know.
Can I pay taxes with a credit card?
Yes, you can pay taxes with a credit card.
The IRS allows you to pay your federal income taxes by credit card. But you often must pay a processing fee, typically around 2% of the total payment. So, the more you owe, the higher the fee. Some states also let you pay state income taxes with a credit card, though they’ll also charge a convenience fee.
The easiest (and most affordable way) to pay your tax bill is IRS Direct Pay. You can submit a payment directly from your bank account to the IRS for free. If you use a tax preparation software, you can often pay for free using electronic transfer.
How to pay taxes with a credit card
If you plan on paying your taxes with a credit card, here’s what you need to know.
- Make sure you can. After selecting the processor, click the processor’s “make a payment” option. You’ll then move to the processor’s portal to complete your payment.
- Choose a processor. PayUSAtax, Pay1040, and ACI Payment, Inc. all accept major credit cards, including Visa, Mastercard, American Express, and Discover. Some may accept digital wallets like Venmo and PayPal. Each has their own fees, so make sure you read the fine print.
- Make a payment. After selecting the processor that fits your payment method, click the “make a payment” option. You’ll then move to the processor’s portal to complete your payment.
The appeal of paying taxes with a credit card
- Earn rewards: Many cards offer generous sign-up bonuses, allowing you to earn rewards on your spending. What’s better than getting rewarded for doing something you have to do anyway?
- Float your tax payment: Charging your taxes on your card allows you to delay payment by essentially getting an interest-free loan until your credit card bill is due. This can help manage cash flow if money is tight.
- Convenience: Instead of mailing a check or arranging an electronic bank transfer, you can pay seamlessly online with a credit card.
The pitfalls of paying taxes with a credit card
- High processing fees. Most card processors charge around 2% as a convenience fee for paying taxes with plastic. This fee takes a big bite out of any rewards you might earn.
- Interest charges. If you can’t pay off the balance on your next credit card bill, high interest charges will outweigh any perks. The average credit card interest rate is around 20.75%.
- Raise your credit utilization. If your tax payment maxes out your credit card (or uses up a ton of your credit limit), your score could drop.
Should you pay your taxes on your credit card?
Paying your taxes with a credit card isn’t the best route for everyone, says Kevin Matthews II, founder of BuildingBread, a financial education company.
“I would not recommend paying with a credit card,” he says. “There’s an additional fee of about 2%, and if the credit card isn’t paid in full, you could also pay interest on the debt.”
But paying taxes with a credit card can make sense in certain situations — mainly if you can pay the balance off in full. This includes if you want to:
- Earn a large sign-up bonus: Opening a new card can often come with a cash or points bonus if you spend a certain amount in the first few months. If you already owe taxes, why not spend on a new card that pays you instead of Uncle Sam?
- Bridge a temporary cash crunch: “It could make sense if you have an introductory credit card with 0% interest, assuming that it would be paid in full before the interest kicks in,” Matthews says. “Doing this could buy you more time and allow you to pay the debt at your own pace while avoiding the interest the IRS would charge.”
- Rack up serious rewards. Some rewards cards offer 1X-5X spent in select categories. Depending on your card, the rewards could outweigh the processing fee.
For some, it’s not about lacking the money to pay your bill, but rather the ability to earn rewards on a large expense.
“If you have the cash to pay the credit card off in full, but you’re using it to rack up rewards, it could make sense, too,” Matthews says. “[But] remember to calculate the IRS’s fee into that equation, as it may negate any potential benefits.”
As you weigh whether paying taxes with plastic is right for you, here are some good questions to consider:
- Will I definitely pay the balance off in full when it’s due? If not, interest charges could quickly snowball.
- How much are the convenience fees? Generally, these fees are around 2%. Is that cost worth the potential rewards I might earn?
- What is my credit score situation? If you’re worried about your credit score or are working on rebuilding your credit, adding a large purchase to your card may not be smart.
The bottom line
Yes, you generally can pay taxes with a credit card. But just because you can doesn’t mean you should.
Knowing the fees and the risks can help you decide if it’s a smart move. In some cases, paying taxes via plastic can be a strategic money move. But it’s important to plan to maximize the rewards without taking on expensive credit card debt.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.