While nobody likes paying taxes, it is possible to turn this relatively common task into an opportunity. With the right credit cards, you can earn rewards, take advantage of 0% intro APR offers and earn valuable benefits. Before using a credit card to pay taxes, it helps to understand how it works.
How can I pay my taxes with a credit card?
The IRS uses third-party payment processors to accept credit card, debit card and digital wallet payments. These services are listed on the IRS website, and they allow taxpayers to pay online or over the phone using their preferred payment method.
Note that not all business taxes can be paid via credit card, for example you can’t pay your current employment federal tax deposits with a credit card.
How to pay taxes with a credit card
To pay your taxes with a credit card, the process is quite simple. Follow these quick steps to pay your taxes online or over the phone.
- Visit the IRS debit or credit card payment website.
- Compare service providers and select which one you’ll use.
- Click the “Make a Payment” button for your selected provider.
- On the provider website, choose which type of taxes you want to pay.
- Enter your payment amount, credit card information and personal information.
- Review and complete payment.
Typically, you’ll need to provide your Social Security Number (and spouse, if applicable), legal name, date of birth, address and email address. This validates your information and ensures that the tax payments are applied to the correct account.
What are the fees for using a credit card to pay taxes?
Each service charges taxpayers a fee depending on which form of payment is used. Credit card fees range from 1.85% to 1.98% of your payment amount. Personal debit cards are usually charged a flat fee of $2.20 to $2.50 per transaction. These fees do not go to the IRS, but they are deductible if you are paying your business taxes.
How big of a payment can I make using my credit card?
Taxpayers can make tax payments of up to $100,000 using their credit card through these online services. For single payments above this limit, you must contact the service provider directly.
Your maximum tax payment using a credit card also depends on your credit limit. Even if your payment is within your spending limit, consider calling your credit card issuer. Letting them know that a large transaction is being charged as it reduces the chances of it being tagged as fraud.
Businesses with tax bills larger than $100,000 who want to pay with a credit card must call one of these phone numbers to process their payment:
- Payments of $10,000,000 or greater through the Link2Gov Corporation, call 866-734-8212.
- Payments of $1,000,000 or greater through WorldPay US, Inc., call 855-508-0159.
- Payments of $1,000,000 or greater through ACI Payments, Inc., call 888-889-7228.
How many tax payments can I pay each year with my credit card?
The maximum number of tax payments you can make each year with a debit or credit card depends on the type of taxes you’re paying.
For individuals, you can make two payments per year for most types of taxes. Installment plans are allowed two per month, while estimated taxes are allowed two per quarter.
Business owners can make two payments per month, quarter or year, depending on the type of taxes being paid. Keep in mind you can’t pay current employment federal tax deposits with a credit card.
If you’re paying more than one type of tax, you can make up to the maximum number of payments per type for each allowed payment period.
What types of payments are accepted?
Acceptable forms of payment vary by company, but they typically include:
- Visa
- Mastercard
- Discover
- American Express
- PayPal
- Click to Pay
- Debit cards with STAR, Pulse or NYCE logos
Other forms of payment are available as well, so compare options among the three service providers if your payment method isn’t listed above.
Pros and cons of using your credit card to pay taxes
“While an individual can free up the cash in the short-term, it may be more expensive in the long-term. One has to evaluate the interest charges by the credit card companies as well as the processing charges by the IRS processors. One may need to consider the IRS installment agreement option as a means of resolving the tax debt without using current funds. Although there may be some additional charges such as IRS-imposed penalties and interest, it may actually be cheaper than the credit card interest and fees,” says Carl R. Johnson, a Louisiana-based CPA.
Before making your tax payments with a credit card, consider the pros and cons to decide if this method is right for you.
Pros
- Get extra time to pay taxes.
- Earn rewards on the transaction.
- Meet a new credit card’s minimum spending requirement to earn a welcome bonus.
- Receive extra perks from your card (some cards offer benefits for meeting certain spending thresholds).
Cons
- Pay fees of approximately 2%.
- Interest charges if you carry a balance.
- Credit score could drop if you don’t pay off charges quickly.
- Ties up your credit limit.
When you should consider using your credit card to pay taxes
With fees of approximately 2%, you might wonder, “Should I pay my taxes with a credit card?”. While using a credit card to pay taxes isn’t the right decision for everyone, there are some scenarios where it makes sense.
Need extra time to pay taxes
There are steep penalties if you don’t file your taxes on time. If you don’t have the money right now, file your tax returns anyway and use a credit card to pay what you owe. If you pay your balance in full each month, you avoid interest charges thanks to the bank’s grace period. Typically, cardholders have 21 to 25 days or more from the statement close to the due date. This extra time may be enough to avoid interest for many taxpayers.
If you need even more time, consider taking advantage of a new credit card’s intro 0% APR offer. These cards provide interest-free financing on purchases, balance transfers or both, depending on the offer. When the promotional period is over, if there’s still a balance, the interest rate reverts to the standard purchase APR.
Earn a welcome bonus on a new credit card
The best credit cards often include a welcome bonus opportunity for new cardmembers. When you meet the spending threshold within the allotted time, you’ll receive the welcome bonus.
Earn rewards on the transaction
Many credit cards also offer rewards on everyday purchases. It is important to understand the value of the rewards you’ll earn for paying your taxes with a credit card versus the costs involved. It makes sense to pay taxes using cards that earn at least 2% back or that offer high-value redemptions.
Reach spending hurdles for extra benefits
Certain credit cards offer additional benefits based on your spending. By paying your taxes with a credit card, you may be able to meet those hurdles to gain extra perks. For example, some hotel cards may offer a free extra night benefit for reaching a certain spending threshold and some airline cards may offer elite status just through spending.
Final verdict
While we have to pay taxes on our income, there is a way to turn this chore into a benefit. Paying taxes with a credit card offers taxpayers several advantages, including earning rewards, having extra time to pay and getting additional benefits.
However, if you’re unable to pay your bill off quickly, the interest charges and impact on your credit score could make your financial situation worse. Talk to your tax professional to see if paying taxes with a credit card is right for you and if you’re eligible to write off the fees.
Frequently asked questions (FAQs)
No, it is not free to use a credit card. The fees for paying taxes with a credit card typically range from 1.85% to 1.98% of your tax payment. However, these fees are tax deductible when made for business taxes.
Your credit score is not directly affected by using your credit card to pay taxes. However, your score could go lower if your utilization ratio spikes due to a large tax payment. Your utilization ratio makes up 30% of your credit score and carrying a large balance can hurt your score. This impact is temporary if you pay down your balance quickly.
The IRS allows individual taxpayers to make up to two installment agreement payments with a credit card each month. Business owners may also make up to two installation agreement payments per month for each type of Form 940, 941, 943 and 945 taxes.
Debit and credit card payments appear on your payment activity within one to two days after your payment date. However, your payments are credited as of the date of payment, not when they appear on your record.