Can You Pay Taxes With a Credit Card?

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If you have a credit card, you may have wondered if you can pay taxes with it. While it’s possible to pay taxes with a credit card, it won’t be free. On the other hand, you could potentially enjoy benefits like earning rewards or hitting your credit card spend threshold to snag the welcome bonus.

Read on to learn more about paying the IRS with your credit card, from the potential benefits to a full rundown of the fees you may face.

Can You Pay Taxes With a Credit Card?

If you owe money to the IRS for your taxes, you have a number of options for payment and those do include paying by credit card. The IRS lets you pay your taxes with a credit card through a third-party payment processor. However, the companies that are allowed to accept credit card payments on behalf of the IRS will charge fees for paying with a credit card.

Therefore, it is important to carefully consider the benefits of paying taxes with a credit card in order to decide if paying these fees is worth it for you. And always make sure that you have a full understanding of credit card terminologies before using a credit card.

What Are the Benefits of Paying Taxes With a Credit Card

There are a few major benefits of paying taxes with a credit card instead of paying by check, direct deposit or money order. This includes earning rewards from your credit card, securing a welcome bonus or hitting a credit card spending threshold to earn a bonus. Some taxpayers may also wish to use a credit card to finance their payment, either by using their credit card’s interest-free grace period or extending payment.

1. Rewards: Travel Rewards, Points, Cash Back

One of the biggest benefits of paying your taxes with a credit card is the potential to earn travel rewards or cash back from the credit card. Even with the credit card processing fee, some of the top rewards credit cards can offer rewards that can offset the cost of the fee. For example, with a 2% credit card fee, you would want to choose a card or cards that offer more than 2% cash back, or the equivalent in rewards.

2. Welcome Bonus

With a large tax bill, you could earn a valuable new account welcome bonus on one or more credit card offers. These welcome bonuses can reach up to $1,000 in value and even secured credit cards may offer them. If these offers are worth more to you than the 2% credit card fee, it can be an easy choice to pay your taxes with your credit card. 

Some of the highest welcome bonus offers have large minimum spending requirements to get those bonuses. If you may not otherwise be able to meet that minimum spend, paying your taxes could be a way to pay for a significant portion, or all of that amount. Depending how large your tax bill is, you could even split the tax payment across two rewards credit cards to earn more than one welcome bonus. 

If you move forward with this though, just make sure you have a firm handle on how credit card payments work to avoid ending up with debt.

3. Hit Your Card Spending Threshold

Some credit cards have additional spending thresholds besides those required to earn a welcome bonus. This could be another reason to use a credit card to pay your taxes. For example, these spending thresholds could help you reach the next level of elite status for an airline or hotel loyalty program. Or, spending a certain amount could offer you a free night stay certificate or a companion airfare certificate. 

You will need to weigh whether the status or other benefit is worth the credit card fee you will incur when paying your taxes with a card. Adding a load of debt to your card that you don’t have the funds on hand to pay off, for instance, won’t improve your credit score.

What Payment Processors Does the IRS Use?

The IRS authorizes three companies to process credit card payments for federal taxes: ACI Payments, Inc., Pay1040 and payUSAtax. Each company charges different fees and accepts different payments, though all three accept Visa, Mastercard, Discover and American Express. 

More information about these companies can be found on the IRS website.  

IRS Fees for Credit Card Tax Payments

As mentioned above, the three payment processors accepted by the IRS charge different fees for credit card payments, which are outlined in the table below:

  ACI Payments, Inc. Pay1040 payUSAtax
Fee For Credit Card 1.98% (minimum fee of $2.50) 1.87% (minimum fee of $2.50) 1.96% (minimum fee of $2.69)

Depending on the tax payment type, there may be a maximum number of times per year that you can pay with a credit card. In addition, tax payments over $100,000 may have special requirements and must be processed over the phone instead of online.

When deciding whether to pay your taxes with a credit card, it’s important to compare the pros and cons. While you could reap rewards, you could also face steep costs.

Pros of Paying Taxes With a Credit Card Cons of Paying Taxes With a Credit Card
Earn rewards, points, miles or cash back for the spending Fees to pay by credit card
Get extra time to pay off your taxes, especially if using a 0% APR offer card High credit card interest rates can hurt your finances
Meet a spending threshold Incurring debt can hurt your credit score
Meet a minimum to earn a welcome bonus  

When to Consider Using a Credit Card to Pay Your Taxes

There are several reasons to consider using a credit card to pay your taxes. As discussed, one of the most popular reasons is to earn rewards from your credit card, including travel rewards, points or cash back. This could also include earning a welcome bonus on a credit card or reaching a minimum spending threshold with a card that opens up new membership tiers or special perks.

If you need more time to pay your taxes, you can file an extension with the IRS or set up a payment plan. However, you can expect to pay penalties for the extension and interest on the payment plan. Instead, you could pay your taxes with a credit card that offers 0% APR to give yourself more time to pay your taxes. You’ll still have to pay the credit card processing fee, but it could end up being a cheaper option. 

This could also be convenient if you have other debts you could move over to the card through credit card consolidation. Just be sure to pay off the balance in full before the promotional period ends to avoid paying the high interest charges.

Ultimately, it’s important to fully understand how cards operate and how credit card payments work before using a credit card to make a large and important payment like taxes. And it’s always good practice to get in the habit of regularly reviewing your credit card statement, especially after paying taxes to make sure that the transaction went through correctly.

This post originally appeared on Lantern by SoFi. The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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