Paying Your Taxes with a Credit Card

taxes

Tax season is upon us once more, and time is running out to get those completed returns to the IRS.

For those of us who actually have to make a payment, as opposed to simply receiving a refund, that April 15th deadline couldn’t seem any closer.

And with all the recent economic turmoil, I’m sure more taxpayers out there are having trouble coming up with the necessary funds to pay Uncle Sam.

So what can you do if you don’t have the money to pay your taxes in full?  Well, one option is charging it on the old plastic…

Companies That Allow You to Pay Taxes with a Credit Card

There are three different companies cited on the official IRS website that allow you to pay your taxes with a credit card.  They include:

Official Payments (Official Payments Corporation)

Type of taxes: both personal and business
Credit cards accepted: Visa, MasterCard, Discover, and American Express credit cards, along with Bill Me Later®.
Fees: 2.00% of the payment amount (minimum of $2.50)

Debit: $2.25 flat fee ($3.95 flat fee if over $1,000)

Pay1040

Type of taxes: both personal and business
Credit cards accepted: Visa, MasterCard, Discover, and American Express credit cards, along with Bill Me Later®.
Fees: 1.87% of the payment amount (minimum of $2.59)

Debit: $2.59 flat fee

PayUSAtax

Type of taxes: both personal and business
Credit cards accepted: Visa, MasterCard, Discover, and American Express credit cards, along with Bill Me Later®.
Fees: 1.98% of the payment amount (minimum of $2.69)

Debit: $2.65 flat fee

These fee structures are valid until the end of 2016, at least. They may change in 2017, so visit the IRS to be sure.

As you can see, each of these companies charge a percentage of the tax payment amount, which can add up in a hurry if you owe a lot.  And let’s face it, if you’re using a credit card to pay your taxes, you probably owe a lot.  Otherwise you’d just pay by check or debit.

The cheapest company above is Pay1040, which charges 1.87% to complete the transaction, meaning you could make money if you use a 2% cash back credit card.

I don’t know why anyone would use the other options seeing that they charge more, but I digress.

In any case, it’s possible to make a small amount of money (or credit card points) by putting your taxes on your credit card.

Just be sure to pay off the charges within your grace period to avoid any unnecessary finance charges.

Tip: Paying taxes with a credit card is a good way to meet minimum spend to earn a sign-up bonus.

Using Debit to Pay Your Taxes and Making Out Like a Bandit

Perhaps an even smarter move is to use a debit card to pay your taxes. Notice the prices above are very small, flat fees. But there’s a trick to it.

First, you’ll want to load the debit card with a credit card, thereby earning lots of points/cash back.

One such example is the PayPal Business Debit Card. It earns 1% cash back on credit purchases, which paying taxes would not be.

However, if you load the card with a PayPal MyCash card from CVS (or similar merchant), where you earned 5% cash back on all purchases, you can see where this method actually puts you way ahead.

It takes some work, but could be worthwhile to someone looking to either increase spend or gather lots of credit card points quickly.

Be Wary of Offers to Pay Your Taxes with a Credit Card

Lastly, let me mention that you may have received offers to pay your taxes from individual credit card issuers that advertise this method of tax payment as convenient or flexible.

They’ll probably also mention that you can earn rewards faster, or that payments can be made until midnight of the return due date.

These claims may be true, but realize it comes at a cost, and if you’re unable to pay off the balance by the statement due date, you’ll end up paying a lot more in the long run than if you were to choose a traditional method like debit or direct deposit.

Additionally, note that the integrated IRS e-file and e-pay options found in tax preparation software programs like TurboTax or H&R Block might be accompanied by higher rates for credit card tax payments.

The IRS website lists fees ranging from 2.35% to 3.93%.

So read the fine print before you consider using a credit card to pay your taxes! It can be a lifesaver if you have bills to pay and need more cash on hand, but it ain’t free.

Tip: If you absolutely must use a credit card to pay your taxes, consider using a 0% APR credit card – doing so will allow you to avoid finance charges for a specified period of time, which if charged, will further increase the cost of paying your taxes with plastic.

Author: Colin Robertson

Colin created this blog after spending several years in a job that required him to scour credit reports on a daily basis. His goal is to help individuals better understand their credit and get the most out of credit cards.

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