Though more than 105 million Americans received a federal tax refund for the 2023 tax year, the Internal Revenue Service (IRS) received more than 162 million tax returns. This means that approximately 57 million Americans owed at least some amount in federal government taxes that year.
How taxpayers foot the bill can vary from person to person, although some opt to pay electronically and others send in a paper check. There are also taxpayers who don’t quite have the funds to cover what they owe who wind up setting up an IRS payment plan. These plans let taxpayers pay overdue tax bills with regular monthly payments over an extended timeline, which gives them some time to catch up.
Another payment option for taxes is a credit card, although there are some serious pros and cons that come with covering taxes with plastic. A big downside of this option comes in the form of fees that apply, and of course taxpayers will typically pay interest on taxes they charge to a credit card if they can’t automatically pay the balance off. Then again, some of the downsides of paying taxes with a credit card can be overcome with the right credit card and a solid plan in place.
Reasons to pay taxes with a credit card
Should you pay taxes with a credit card? That depends on what you’re getting in return. Consider four different instances where paying taxes with a credit card could make sense.
1) You can earn a credit card welcome bonus
If you recently applied for a new credit card (or are about to apply for one) that offers a large welcome bonus, paying your taxes with that card could help you quickly meet the minimum spend threshold required to earn the bonus. Even if you have to pay a processing fee, the bonus (depending on its size) could far outweigh the cost of those fees.
2) You can earn credit card rewards
If you have a credit card that earns rewards on all of your spending — versus just rewarding spending in certain categories — your tax bill could be a good way to net quite a few points, miles or cash back rewards. Whether or not this makes sense, though, depends on both the processing fee and how much you’ll earn in the “other” category of spending.
If your card only offers 1% back and the processing fee is 1.85%, for example, your rewards won’t make up for the fees involved with paying your tax bill. However, if you earn 2% cash back, you’ll still net more rewards than you’ll pay in fees.
3) You can have extra time to pay off your taxes
If your tax bill is higher than you expected or you simply can’t pay it all off at once, using a credit card can buy you a bit more time. This is especially rewarding with cards that have an introductory 0% APR credit card offer since these offers let users pay down their balances interest-free for anywhere from 12 to 21 months.
Just make sure to pay that credit card bill off before the introductory period expires. If you don’t, any remaining balance will jump up to the normal variable interest rate.
4) Enjoy greater security and convenience
Paying with a credit card can sometimes just be the easiest and most convenient option. Plus, credit cards offer added security that cash, checks or even bank wires do not.
It could even make sense to pay tax with a credit card if you are having liquidity or short-term cash flow issues, says CPA Paul Miller of Miller & Company LLP. In that scenario, you could charge your tax bill to a credit card and have several weeks to pay the balance without any interest — or even longer if more time is required.
Once again though, you have to consider what you’re willing to pay for the convenience of paying taxes with a credit card. The fees may be worth it if your tax bill is relatively low, but that may not be the case if you owe several thousand dollars in taxes or more.
Best credit card to pay taxes
Is it worth paying taxes with a credit card? It definitely can be, but the chances of breaking even or ending up “ahead” depend a lot on the card you use. If you’re willing to sign up for a new credit card for the purpose of paying taxes, you’ll want to consider a card that offers cash back rewards, an intro 0% APR offer or both. You can also opt for a card that offers a large sign-up bonus that will more than make up for the fees you’re charged in the end.
Fortunately, there are quite a few balance transfer credit cards that offer rewards and intro APR offers all in one package. There are also credit cards with sign-up bonuses so large they more than make up for any processing fees you’re charged. The chart below includes some of the best options out there:
What is the fee for paying taxes with a credit card?
While paying taxes with a credit card may be helpful or even necessary, it can also be costly. There are certain fees and expenses to watch out for, which could easily negate any benefits you might otherwise receive.
For example, the IRS charges processing fees that vary from 1.75% to 1.85% (minimum of $2.50) depending on the payment processing company you choose. For a $5,000 federal tax bill, this translates to credit card fees of $87.50 or $92.50.
Still, CPA Logan Allec of Choice Tax Relief points to the rewards consumers can earn for paying their tax bill with a credit card as potential justification for these fees. For example, a credit card that earns 2% cash back would earn $100 in rewards on the same $5,000 tax bill. This would leave the consumer ahead $7.50 to $12.50 depending on the processing company.
However, Allec adds that you may not be able to pay your credit card bill in full after putting your taxes on your card. This means you may be setting yourself up to pay interest on your credit card balance, which is generally higher than the combined IRS interest plus the failure-to-pay penalty rate.
The exception to this is if you use a card with an introductory 0% purchase offer. These cards allow you to make purchases within the first few months, then pay them down with no interest charges for anywhere from 12 to 21 months. As long as you pay off your balance before that introductory period ends, you can avoid paying interest on your tax payment.
➤ LEARN MORE:Are credit card rewards taxable? A guide to credit cards and taxes
Is paying taxes with a credit card worth it?
For the right person — and with the right credit card — it can indeed be beneficial to pay your taxes with a credit card. However, before deciding to go this route, it’s important to weigh the benefits and downsides carefully to make sure that using your card won’t cost you more than it’s worth.
For example, the rewards you can get for paying taxes with plastic can be worth it if you have the right card and a plan in place.
“It can make sense to pay taxes with a credit card if doing so is an efficient way for you to earn a signup bonus or welcome offer,” says Allec. “Since taxes can be a large expense, they can be a handy way to quickly hit the spending requirement to earn these bonuses.”
That said, the math in favor of earning rewards or a credit card sign-up bonus really only makes sense if you have the cash to pay your balance in full or you pick a card that offers 0% APR on purchases for a limited time. If you’re going to be stuck paying the high variable interest rates credit cards charge on your tax bill for several months or longer, any rewards you earn won’t be worth it in the end.
This is why, for the most part, Crystal Stranger, CEO of Optic Tax says she really only sees two types of clients who pay taxes with a credit card — people who pay taxes with a credit card to earn rewards but have the cash in the bank to pay the balance off right away, and people who owe small amounts and need a few months to pay but want to avoid the hassle involved in setting up an IRS payment plan.
Frequently asked questions about paying taxes with credit
Does it cost to pay taxes with a credit card?
You’ll owe payment processing fees if you pay taxes with a credit card. With the IRS, these fees range from 1.75% to 1.85% of the amount you charge.
Is paying taxes with a credit card worth it?
Paying taxes with a credit card can be worth it if you earn rewards, enjoy a 0% interest rate while you pay off the balance or both. Make sure to run the numbers before you decide to charge your tax bill to a credit card.
Is there a fee to pay taxes with a credit card?
Payment processing fees for paying taxes with a credit card range from 1.75% to 1.85% for your federal taxes.
Do you have to pay taxes on credit card rewards?
Credit card rewards are considered a rebate per IRS rules, which means you typically do not have to pay income taxes on rewards you earn.
Can you pay taxes with a credit card?
Yes, you can pay taxes with a credit card. However, interest charges will accrue if you carry a balance from one month to the next without an intro 0% APR offer. There are also credit card processing fees to consider.
