Sometimes it can seem like a really tempting option to pay your taxes with your credit card, especially if you’re a little bit tight for cash.
Not only that but you usually also have a nice little 21-day grace period that can be helpful, but you may also even get some rewards from your credit card company for doing so.
If you’re planning on paying with your credit card though, you should also really consider the extra processing fees that are associated with payments on this card type.
This can sometimes outweigh the benefit and leave you worse off in the long run. So is it really worth it? We’ll find out throughout this article.
Can You Pay Taxes With A Credit Card
Technically, yes. If you want to pay your taxes with your credit card there’s no law or rule prohibiting you from doing so. However, it’s not usually the best option to choose if you can avoid it.
Paying for your taxes with a credit card will not be free like it is when you pay via a bank account transfer.
What will actually happen is that you’ll be charged a percentage of the tax payment you’re making. This fee can differ depending on the processor that you choose.
What It Costs To Pay Taxes With A Credit Card
According to the IRS, there are several different fees depending on the payment processor. The fees are as shown below:
- PayUSAtax.com – 1.96% – $2.69 minimum
- Pay1040.com – 1.87% – $2.50 minimum
- ACI Payments, Inc – 1.98% – $2.50 minimum
These payment fees may be higher if you opt to pay with an integrated IRS e-pay service provider:
- Pay1040.com/SpecialOffers/TurboTax – 2.49% – $3.95 minimum
- Fileonline.1040.com – 2.35% – $3.95 minimum
- FileYourTaxes.com – 3.93% – $2 minimum
Benefits Of Paying Taxes With A Credit Card
If you have a rewards credit card and you use it to pay your taxes you’ll be able to earn rewards such as points, miles, or cash back.
So for example, say you pay $1000 worth of taxes with your credit card through the cheapest payment processor which is PAy1040.com, you’ll be looking at a fee of about 1.87%.
To be able to compensate for the fee you’ll be paying you’ll need to be earning a higher reward percentage. You’ll want to pay with a rewards card that is 2% or more in order to still be better off.
Benefit From Special Financing
If you’re struggling for money and just need a little extra time before paying the money, you might benefit from credit cards that offer an intro 0% APR period.
With these types of card, you can get over a year of special financing if you can afford the processing fee.
For example, the Discover It Cash Back credit card offers 0% intro APR for up to the first 15 months on both purchases and balance transfers.
This means if you can pay off the sum by this time you won’t have any additional interest. It’s important to be careful though as after this time period the APR shoots up to between 12.74-23.74%
Disadvantages Of Using A Credit Card To Pay Taxes
If you use a credit card to pay your taxes you’re going to end up paying more due to the fee from the payment processor.
Unless your credit card offers a good reward scheme there’s no real benefit from using a credit card.
Interest Charges On Unpaid Balances
It’s easy to get yourself into trouble with a credit card, the last thing you want to be doing is using your credit card to pay your taxes and ending up with a large amount of debt.
Because of the hefty interest charges that you can get from credit card companies, it’s really important to ensure that you pay the balance in full by the due date.
High Credit Utilization Rate
One thing you’ll need to be careful of is that paying your taxes with a credit card can damage your credit score. This is because the high payments cause a noticeable increase in your credit utilization rate.
If you wish to calculate your credit utilization rate, you’ll need to divide your total balance by your available credit.
You want to keep this rate as low as possible, which essentially means you need to borrow as smaller amount of money from your credit card company as possible.
If you have no other option, you can pay your taxes with your credit card. After all, there’s nothing to actually stop you from doing so. However, it’s not really something that I’d advise if you can help it.
Sure, if you have a credit card where the rewards rate outweighs the processor fee then it’s not that bad of an idea.
But it is still essential that you do pay the money off by the date agreed upon or you can still risk running up a lot of debt if you get bitten by the higher APR interest rates.
And if you already have already used a fair amount of your available credit balance on other items, then I would steer clear of adding your taxes to the list.
If you do you’ll see that your credit card utilization rate will skyrocket.
If you have any reservations about being able to meet the credit payments then do not under any circumstances use your credit card to pay for your taxes.
It may seem like a quick fix if you are really at a loss as what to do, but I promise you that you will only end up in further debt if you miss these payments and the charges can rack up quicker than you may think.