If You Owe Taxes You Might Be Wondering If You Can Pay The Irs With A Credit Card More Importantly Should You
It can be tempting to use a credit card to pay off your tax bill doing so can buy you a little more time, and with the right rewards card, you could earn some serious points or cash back.
But it can come at a cost. If you are paying by credit, you will see fees ranging from 1.87% to 2%, says Jayson Mullin, founder of Top Tax Defenders.
While those fees may seem small, they could add up to a lot depending on how large your tax bill is. For example, if you have a tax bill of $5,000, a 2% fee would equal $100.
Read on to learn about the pros and cons of paying the IRS with your credit card, as well as how to pay the IRS while minimizing credit card fees.
Pay Taxes With Credit Card
On the opened page, select a payment processor. We suggest paying taxes with the payment processor that has the lowest rate of fees.
You will then be redirected to the payment processors website. From there, you can pay taxes using the instructions. Again, you will need to select reason for payment and fill out a verification form to verify your identity.
The Drawbacks Of Paying Taxes With A Credit Card
1. Paying interest. Its a terrible idea to finance your tax bill with your credit card. The average credit card has an interest rate of approximately 15% APR, and many are higher. Yet the IRS will offer you a payment plan with a much lower interest rate. If youre having trouble paying your taxes, dont just charge it to your credit card. Instead, speak with your accountant or tax advisor about alternatives.
2. Paying fees that cost more than the rewards are worth. Many people value their reward points and miles as higher than what they receive. For example, you might redeem your airline miles for a ticket that would have cost $500, but that might not be its true value. If you had to fly at an inconvenient date or time or take a longer route, then you arent getting the full value. And if a discount carrier offers a competing flight for less money, then you could also be overestimating the value of your award seat. Unless you would have paid cash for the exact same reservation, then your award is probably not worth its stated value to you.
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Deadline To File And Pay Taxes Was May 17
Find out what to do if you cant pay what you owe. An extension to file is not an extension to pay the taxes you owe.
The estimated tax payment deadline was April 15. Get details on the 2021 tax deadlines.
Pay with your bank account for free or choose an approved payment processor to pay by credit or debit card for a fee.
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In Rare Cases The Rewards Points Might Be Worth More Than The Processing Fees
by John Waggoner, AARP, Updated April 19, 2021
Alamy Stock Photo
En español | Federal income tax returns and taxes owed are due May 17, and if you’re staring at a big tax bill, you might be tempted to charge it on your credit card. That way, at least, you’d reap some rewards points as your money flies off to Uncle Sam. But the decision is more complicated than you might think.
The Internal Revenue Service has contracted with three companies to process federal income tax payments by credit card. They each charge a fee, ranging from 1.96 percent to 1.99 percent, to process your payment.
Clearly, if your credit card offers two percent cash back on purchases, you’re not going to make much money. You’d barely be coming out ahead, says Ted Rossman, industry analyst at creditcards.com. On a $10,000 tax bill, you’d get $200 back on a card that offered two percent cash back on purchases, but pay between $196 to $199 in fees. The net gain of $1 to $3 might not seem worth it, although at least you would effectively eliminate the processing fee.
If you have a rewards card and get points for your purchases, however, you may be able to get some benefit from charging your taxes. Here again, you should make sure that the amount you pay in fees to the tax processing service is less than the value of your points.
Make An Irs Payment With A Same
How it works: A wire transfer moves money electronically from one person to another using a bank or a nonbank provider.
Cost: About $25, depending on your institution
Your financial institution decides the availability, cost and cut-off times for the wire.
You have to fill out the IRS’ Same-Day Taxpayer Worksheet and take it to your bank first.
You must fill out a separate worksheet for each IRS payment you make.
The transfer is final once processed.
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Earn A Generous Credit Card Sign
Many card issuers offer a sign-up bonus/welcome offer if you spend a certain amount on your card within a specific time frame. This bonus can be worth thousands of dollars and come in the form of cash back or travel rewards for your account. Many of these bonuses are huge and can even breach $1,000 in value.
The most advantageous reason to use a credit card when paying a sizable tax bill is to earn an abundance of rewards for that spending. Since there are no credit cards that offer bonus earnings on tax payments, signing up for a card with a generous sign-up bonus or welcome offer is the simplest way to rack up tons of points or miles on your tax bill payment.
Some travel rewards cards have especially high minimum spending requirements for earning a bonus.
For example, the Ink Business Preferred Credit Card offers 100,000 Chase Ultimate Rewards points after spending $15,000 on purchases within three months of account opening. And The Business Platinum Card® from American Express has a special offer for TPG readers of 125,000 Membership Rewards® points after spending $15,000 on eligible purchases with the card within the first three months of card membership.
If you think youre going to have trouble paying your balance in full before accruing interest, avoid using a credit card altogether to pay your taxes. The interest and fees will stymie any rewards you earn.
Make Irs Payments In Installments
How it works: If you cant pay your tax bill in full when its due, you can get on a payment plan with the IRS. There are two types of plans: short-term and long-term .
Cost: $0 to $225, depending on the plan you select, how you enroll and whether youre a low-income taxpayer
Sign up online fairly easily on your own .
Most taxpayers qualify.
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Drawbacks Of Paying Taxes With A Credit Card
If you pay with a credit card that offers a lower percentage of rewards than the fee, it doesn’t really make sense to use a credit card.
Interest charges on unpaid balances
If you use a credit card to pay taxes, it’s key to pay your balance in full by the due date to avoid interest charges. Otherwise, you can risk debt and high interest charges if you only make the minimum payment and carry a balance month-to-month.
For example, if you charge $1,000 in taxes to a credit card with the average 16.88% APR and only make minimum $35 payments, it’d take you roughly 37 months to pay it off and cost you $287 in interest charges. And if you pay with a credit card, you won’t be able to take advantage of any payment plans offered by the IRS.
High credit utilization rate
Paying taxes with a credit card can have a negative impact on your credit score. Charging high tax payments to a credit card can cause a spike in your credit utilization rate, which is the total percentage of your credit you use.
To calculate your utilization rate, simply divide your total credit card balance by your total available credit. So if you have two credit cards with a combined $3,000 balance and a total $10,000 credit limit, your utilization would be 30%. Adding a $2,000 tax payment to that would increase your utilization rate to 50%, which is high.
Limitations on taxes eligible for credit card payments
Pay Your Tax Bill By Debit Or Corporate Credit Card
Theres a fee if you pay by corporate credit card or corporate debit card. The fee is not refundable.
Theres no fee if you pay by personal debit card.
You cannot pay by personal credit card.
Pay HM Revenue and Customs for:
- Self Assessment
- employers PAYE and National Insurance
- Income Tax
- imported goods youve declared on the Customs Declaration Service
- miscellaneous payments
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Electronic Funds Withdrawal For Businesses
Electronic Funds Withdrawal is an integrated e-file/e-pay option offered when filing your federal taxes using tax preparation software or through a tax professional.
The table below shows the types of business taxes that can be paid this way. For information about the tax forms in the table, visit .
Form 990PF balance due and amended returns
Up to 4 payments may be submitted with your balance due return.
Form 990T balance due and amended
Up to 4 payments may be submitted with your balance due return.
Form 1041 balance due and amended returns
Caution: Don’t Use A Credit Card To Finance Your Tax Bill
In most cases, it’s inadvisable to pay your taxes with a credit card if you’ll be unable to pay off the balance right away. In short: Don’t use a credit card to finance your taxes, according to Los Angeles CPA Rob Seltzer.
“For those who can’t pay their taxes, the IRS charges a lower interest rate than conventional credit cards,” he added, referring to the agency’s payment plans. If you need more time, you can also look into filing an extension.
The other obvious pitfall is paying more in fees than you’d get back in perks. That’s why Seltzer, a dedicated player of the credit card points and miles game, says he never recommends his clients pay taxes via credit card. “The perks that you earn from the points would not equal the cost,” said Seltzer, who’s vice president of the LA chapter of the California Society of CPAs.
Hence, the unavoidable math calculation. Happy number-crunching.
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Use Electronic Funds Withdrawal
Using EFW is like creating a digital check to make a payment. It doesnt require any enrollment and the IRS doesnt charge you a fee to pay in this way. Before choosing this form of payment, youll want to check with your banking institution to see if it charges a fee on its end. In order to complete an EFW, you will need your bank account number, routing number, and type of account. This option is only available if you file using tax preparation software or the services of a tax professional.
How To Pay The Irs With A Credit Card And Get The Lowest Fee Possible
If you want to pay the IRS with a credit card, you have a few options. The IRS works with three payment processors that accept credit card payments.
To minimize credit card fees, choosing Pay1040.com may be your best bet as they have the lowest fees. Additionally, youll want to see if you can deduct the credit card processing fees on your tax return to help reduce the impact.
Unfortunately, there arent many other ways to minimize credit card processing fees when paying the IRS. You could consider paying with a debit card, which has flat fees ranging between $2.25 and $3.95 and could be a cheaper alternative. Of course, you wont reap any rewards, but you also wont pay higher fees or additional interest.
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Meet An Important Spending Threshold
There are also some scenarios where it makes sense to pay taxes with a credit card in order to reach an important spending threshold, and these instances arent limited to earning credit card welcome bonuses. It may be worthwhile to spend a certain amount of money to reach the next level of elite status with a hotel credit card or an airline credit card, for example.
Take the Citi® / AAdvantage® Executive World Elite Mastercard®*, for example. This card offers consumers a welcome bonus: Earn 50,000 American Airlines AAdvantage® bonus miles and 10,000 Elite Qualifying Miles after $5,000 in purchases within the first 3 months of account opening. Plus, Admiral’s Club® membership . Cardholders also earn 2 miles per dollar spent on American Airlines purchases and 1 mile per dollar on all other purchases.
This card does charge an annual fee of $450, but comes with Admirals Club lounge membership worth $650 for non-elite members as a cardholder perk. Other cardholder benefits include a free checked bag, a fee credit for Global Entry or TSA PreCheck membership, priority boarding and priority airport check-in. Interestingly enough, this card also grants 10,000 Elite Qualification Miles after spending $40,000 on your card within a calendar year.
Do Credit Card Companies Report To Irs
7 Options for Sending IRS PaymentsâIt’s Easier Than You Might Think
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Frequency Limit Table By Type Of Tax Payment
You can only apply debit card, or cash payments to certain forms, payment types and tax years. Use the table below to find out which kinds of payments you can make using these methods, and how often you can make them.
Please note that you cant use card or cash payment methods to make Federal Tax Deposits.
For information about the tax forms in the table below, visit .
Pay Taxes Online Credit Card And Bank Account
Regardless of the kind of tax you need to pay, it can be paid online. The IRS allows taxpayers to make tax payments via Direct Pay and third-part payment processors. While you can pay on Direct Pay using your bank account, IRS-approved third-part payment processors only accept payments online with a debit or credit card.
Although there arent going to be fees when paying taxes online with bank account, there is a small processing fee for paying with credit cards. This is because you wont be paying directly to the IRS. You will pay taxes on the payment processors website.
As for the fees, it depends on the payment processor you choose to pay. The fees are about $2 flat for debit cards and 1.75% for credit cards.
Below, you can see in detail how to pay taxes online with your bank account and credit card.
Make An Irs Payment With A Credit Card
How it works: You go to the website of one of the IRS three independent payment processors, then provide the payment amount, your card information and other data. The processor sends the money to the IRS.
Cost: Between 1.96% and 1.99% of your payment minimum fee is between $2.50 and $2.69
Can be done online or over the phone.
Works with PayPal, Visa, Mastercard, Discover, American Express, STAR, Pulse, NYCE cards and digital wallets for Visa, Mastercard and American Express .
Fees usually cancel out the value of miles or other rewards earned for using your credit card.
High interest rate may apply if you carry the balance on your credit card.
Putting a large amount on your credit card could affect your credit score.
Usually cant cancel payments.
Your information goes through a third party.
Send A Check In The Mail
While the IRS strongly encourages people to pay their taxes online, you can still use the traditional option of sending your tax payment . You can send a check, money order or cashiers check made payable to the U.S. Treasury for your intended payment.
Make sure that your check includes your personal information, including your name, address, phone number and Social Security number. Youll also need to include the tax year and tax form number on your check to make sure it is applied appropriately.
If you are choosing the pay-by-mail option, it is best to send your check early and to pay for tracking. If your check gets lost in the mail, you will still be responsible for payment and any late fees that may apply.
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