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Your accountant probably doesn’t want you to pay your taxes with a credit card.
“I have never advised a client to pay with a credit card,” says Eric Pierre, CPA and owner of Pierre Accounting, a firm with locations in California and Texas. “I generally don’t think it’s a good idea.”
But there are special cases in which using a credit card for your tax bill may be a necessary last resort or help you save with bonus rewards. Here’s what you need to know about paying your taxes with a credit card, the consequences you could face in doing so, and how to determine whether it might be worth it for you this tax season.
Can You Pay Taxes with a Credit Card?
The IRS provides a few third-party payment processing options for taxpayers who want to use credit cards. Under each of these processors, you will pay additional fees to use a credit card for your tax payment.
|Fees||1.96% ($2.69 minimum)||1.87% ($2.59 minimum)||1.99% ($2.50 minimum)|
These fees are for payments made directly through these payment companies, which you can find on the IRS’ website. You can also pay your taxes with a credit card if you use a tax preparation service with e-file and e-pay, such as TurboTax, though different — and generally higher — fees will apply.
The IRS does cap the number of card payments allowed. This is something to consider if you plan to make multiple payments toward your balance over tax season rather than one payment in full, or if you make estimated quarterly payments. The maximums vary based on the year and the tax forms you file, but generally Form 1040 payments are limited to two per year and Form 1040-ES estimated taxes are limited to two card payments per quarter. You can find the full rundown from the IRS here.
Different Tax Payment Methods
- DirectPay: This is the most convenient — and free — payment method the IRS offers. Connect your checking or savings account, and pay your balance by electronic funds transfer. There’s no fee and you can schedule your payments in advance.
- Credit card: Payment by credit card is convenient, but you’ll pay a fee ranging between 1.87% and 1.99% of your amount owed. That may seem small, but for large balances it can quickly add up. If you choose this method, make sure you pay your balance in full when your statement is due, to avoid accruing interest on your card.
- Debit card: Like credit cards, debit card tax payments incur fees, though these fees are flat, ranging from $2.00 to $3.95. You likely won’t earn any rewards, but you also forgo any risk of carrying over credit card debt by using your debit card. Before choosing this method, ensure your checking account balance is more than your payment so you don’t risk overdrafting.
- Check: You can always send your tax payment to the IRS with a check in the mail for no cost beyond postage. There’s still some risk with this method though; your check could be lost in delivery or processing. Experts we spoke to recommend sending your check via certified mail, which can stand as proof your payment was sent even if it’s lost.
Pros and Cons of Paying Taxes with a Credit Card
Meet spending threshold to score a welcome bonus
Enjoy a few extra weeks after making tax payment before credit card payment is due
Fees increase your amount owed (and may offset rewards earned)
Risk of high-interest debt balances if you don’t pay it off within the month
A large tax payment could push your balance close to your credit limit and raise credit utilization, negatively affecting your credit score
Should You Pay Taxes with a Credit Card?
It is possible to pay your taxes owed with plastic, but does that mean you should? Here are a few things to consider before you decide:
“Are you going to be disciplined to pay that tax bill down?” asks Ryan Losi, CPA and executive vice president at PIASCIK, an accounting firm based in Virginia. “If it’s a $200 tax bill, that’s one thing. But if your tax bill is $5,000 or $10,000 and you put it on a credit card, you’ve got to pay that off, and you may end up paying more interest on the card than you pay to the federal government.”
With today’s average credit card APRs above 15% (and many reaching upwards of 20%), charging a large tax payment to your card without a firm payoff plan can lead to exponentially more money owed in interest over time.
If you already carry a debt balance which your taxes will only add to, using your credit card should only be a last resort — and even then, you’re probably better off working with the IRS to establish a payment plan or file an extension. These plans still carry interest and fees, but they’re much less costly than credit card interest you’ll accrue over the same payoff period.
Alternative: IRS Payment Plan
If you’re facing a period of financial hardship and are unable to pay what you owe in full by Tax Day, the IRS offers payment plan options to make payments more manageable. Before resorting to charging your balance to a high-interest credit card, apply for one of these first.
If you’re looking to charge your taxes owed because you don’t have the money to pay in full, apply for a payment plan or extension with the IRS before you risk putting the balance on a high-interest credit card.
These payment plans work similarly to loans: you’ll pay your taxes owed over time (up to 60 months) through monthly installments. But they’re not free. There’s a one-time setup fee, as well as accrued penalties and interest until your balance is paid in full (you can find more information about specific costs on this IRS webpage).
“I think they’re fantastic plans,” Losi says. “It’s better to opt into an installment program with the IRS and stretch it out over 60 months at a 9% rate as opposed to paying it all upfront then committing yourself to a credit card interest rate somewhere north of 15%.”
You should also be wary of potential damage charging your taxes to a credit card could have on your credit score. Credit utilization ratio is a major factor in your score calculation, and if you charge a large amount in taxes, it could take up a significant portion of your available credit, resulting in a drop in your credit score.
If you need to carry that tax balance month-to-month, paying it off over time, your credit score could suffer longer-term damage. If you’re unable to get your utilization back to a healthy ratio quickly, that dip could turn into a long-term trend. And using up much of your available credit limit leaves you with little wiggle room if you find yourself in need of available credit in the future.
Alternative: Other Payment Options
You might not earn rewards, but standard payment options are just as convenient as using a card if you have the cash on hand to pay your tax bill upfront.
“We usually recommend using DirectPay or a check through certified mail,” Pierre says. “Those are both free.”
Losi agrees DirectPay is the most convenient option for many of his clients, and doesn’t discount a standard check sent via mail either; just make sure your check is postmarked by Tax Day. Even if you put off your payment until the deadline, these are both viable options.
Rewards Gains vs. Fee Losses
The risks can be high, but if you plan ahead and prepare, there can be value to using your card to pay taxes. Start by making sure you will pay down any balance before interest accrues. Then, ensure that you can earn more in rewards than you’ll pay in processing fees.
Corritta Lewis, a travel blogger who shares her experiences at It’s a Family Thing, pays taxes with credit cards annually. Lewis plans ahead to target welcome bonuses and earn benefits that she says outweigh the additional fees that come with paying taxes this way.
“This allows me to pay my taxes, meet the minimum spend requirement, and earn credit card points,” Lewis, 31, says. She warns that this isn’t the path for everyone, and it’s only worth it because she pays her tax balance off by the end of the month. Lewis sets aside small amounts each month throughout the year to contribute toward the balance, which she pays off in full before accruing interest.
Using tax payments to meet the minimum spend for a sign-up bonus, like Lewis, is one way to curtail fees. You may also have success using a card that’s already in your wallet.
Each of the IRS’ payment processors charges under 2%, so if you have a flat cash back card that earns 2% or more on every purchase, you can come out on top using your card for taxes.
That’s the strategy Janice Lintz, a freelance travel writer who says she has leveraged over 2.7 million points and miles to travel to more than 139 U.N. countries, uses to pay her federal income taxes.
Lintz, 57, began implementing this strategy the year she sold her home and had to pay capital gains tax. She said she used a card that’s no longer available which earned 3% cash back on every purchase. Even after accounting for payment processing fees, she was able to net 1.13% cash back on her total tax payment.
Since then, Lintz says she’s used both the Citi® Double Cash Card* and Capital One Venture Rewards Credit Card* on tax payments. Citi Double Cash Card earns 2% cash back on every purchase (1% as you spend, 1% as you pay it off), while Capital One Venture earns 2X travel miles on every purchase. If you submit your payment through Pay1040 for a 1.87% charge, that’s a net 0.13% earned on your tax payment.
While you can pay your taxes with a credit card, it may not be the most cost-effective option or most beneficial for your long-term financial health, though there are exceptions for responsible credit users looking to earn extra rewards.
“Credit cards and using credit cards to earn rewards only works if you pay your credit cards in full and on time,” Lintz says. “That’s critical. Some people can handle it and some people can’t. You really do need to know who you are before you embark, because the goal is not to get yourself further in a hole.”
Always compare the fees and interest you’ll incur against any benefits you may get before making your payment. And if you’re charging your tax payment because you’re unable to pay cash, look into less-costly payment plans through the IRS before resorting to high-interest credit card debt.
*All information about the Citi Double Cash Card and the Capital One Venture Rewards Credit Card has been collected independently by NextAdvisor and has not been reviewed by the issuer.