Tax season is upon us once more, and before you know it time will be running out to get those completed tax 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…
FYI, this is also a popular option for those of us who are into credit card churning, as it can be helpful to meet a minimum spending requirement to earn a bonus.
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. You’d probably be best sticking with only these verified companies. They include:
PayUSAtax
Type of taxes: both personal and business
Credit cards accepted: Visa, MasterCard, Discover, and American Express credit cards, along with STAR, Pulse, NYCE, Accel, and PayPal.
Fees: 1.96% of the payment amount (Minimum fee: $2.69)
Debit: $2.55 flat fee
Pay1040
Type of taxes: both personal and business
Credit cards accepted: Visa, MasterCard, Discover, and American Express credit cards, along with STAR, Pulse, and NYCE.
Fees: 1.99% of the payment amount (minimum of $2.58)
Debit: $2.58 flat fee
ACI Payments, Inc.
Type of taxes: both personal and business
Credit cards accepted: Visa, MasterCard, Discover, and American Express credit cards, along with STAR, Pulse, NYCE, (Digital Wallets for Visa, MasterCard, American Express), Pay With Cash, and PayNearMe.
Fees: 1.99% of the payment amount (minimum of $2.50)
Debit: $2.o0 flat fee ($3.95 flat fee if over $1,000)
These fee structures are valid until the end of 2021, at least. They may change in 2022, so visit the IRS website 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 PayUSAtax, which charges 1.96% to complete the transaction, meaning you could make a small amount of 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. I suppose they’re only slightly higher.
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.
But perhaps the better reason to do it is to meet minimum spend for a credit card opening bonus.
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
- It might be possible to make some money if you pay your taxes with a debit card
- The key is loading the debit card using a method that earns points, miles, or cash back
- Just make sure the debit card is actually accepted at the lower rate
- A small test payment might be best to ensure it codes correctly
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.
Just do a small test amount to ensure it actually charges you the debit card rate before paying the full sum.
Be Wary of Offers to Pay Your Taxes with a Credit Card
- Take a hard look at any pay tax by credit card offers that come to you
- Also steer clear of the offers integrated into e-file software like TurboTax
- They typically charge higher fees for the same exact service
- It’s best to make payments directly from the payment processors listed on the IRS website
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.
For example, you might be offered to pay your taxes by credit card via TurboTax, but the fee could be 2.49% instead of 1.99%.
On a $5,000 tax bill, that’s a difference of $25. Might as well just pay directly from the payment processor websites instead.
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.
Paying Taxes with a Credit Card FAQ
- Fees range from 1.96% to 1.99% with small minimums
- No part of the fee you pay goes to the IRS (it goes to the payment processor)
- You are not required to send in the payment voucher to the IRS if you pay by credit card
- The IRS will refund any overpayment unless you have debt outstanding
- These card processing fees can be tax deductible for business taxes
- The fees are higher if you pay within an integrated e-file tax program like TurboTax (range from 2.35% to 3.93% fee)
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.