Home > Credit Cards > Should I Pay My Taxes With a Credit Card?

Comments 0 Comments

[Update: Some offers mentioned below have expired. You can view the current offers from our partners here — Capital One Venture Rewards card. Disclosure: Cards from our partners are mentioned below.]

Beyond the cold weather and snowstorms many Americans are facing this winter, a lot of us are also staring down a large tax payment. And when it comes time to pay what we owe, we actually have several choices when it comes to the method of payment. Unfortunately, many of us choose a form of payment that costs more than we thought it would.

The Cost of Paying Your Taxes With a Credit Card

The Internal Revenue Service authorizes several companies to accept credit card payments on its behalf. While this can seem like an easy way to make a payment, these companies charge significant fees. The fee for credit card acceptance starts at 1.87% of the amount paid, and can be as high as 2.35%. So someone who chooses to pay a $4,000 tax bill with a credit card will incur between $74 and $94 in fees.

These same companies will also accept debit cards at a much lower cost, between $2.49 and $3.50 per transaction. So in most cases, taxpayers who are looking for the convenience of an instant, online transaction will be better off using a debit card than a credit card. Further, credit card users who do not pay their balances in full each month will incur interest charges on their tax payment, adding considerably to their total tax bill.

When a Tax Payment Credit Card Can Make Sense

Despite these fees, there are a few situations where the fees charged for credit card payments can be justified. For example, there are credit cards that offer rewards worth as much or more than the fees charged. For example, the Capital One Venture Rewards card offers double miles on all purchases, and each mile is worth a penny as a statement credit toward any travel expense. Depending on how much you owe, the cash-back rewards could work in your favor.

Still, be aware that the fees you pay to use your card will largely offset your reward. (Continuing the earlier example, if you are paying 1.87% to use your card and receive a 2% reward, you will receive a net reward of just 0.13%.)

In addition to earning rewards worth slightly more than the fees, credit card users who avoid interest charges by paying their balances in full can also obtain a few extra weeks of interest-free financing by paying taxes with a credit card. For example, if a payment is made on April 15, and the credit card statement closes on May 5, then the payment will be due on May 26 if the card has the minimum 21-day grace period required by law. In fact, many cards offer a 25-day grace period.

It’s also important to consider that some credit cards come with 0% APR promotional financing that can last from six months to as long as 18 months. If you have a credit card that has one of these offers, using it to make your tax payment can be a great way to receive an interest-free loan, although you will still pay transaction fees to the IRS.

Other Ways to Save When Paying Taxes With Plastic

  • Choose the right card. If you are using a credit card to make a tax payment, be sure to use the right card. The cost of credit card payment can vary based on the card used, with cards that are part of the Visa and MasterCard payment networks being the least expensive, and American Express cards being the most.
  • Know your statement period. If you are making a credit card payment to have a little extra time to come up with the money, but you are still planning on avoiding interest charges by paying your statement balance in full, then you should be sure to wait until your statement cycle closes. Doing so will give you an additional month of interest-free financing on your charges.
  • Consider IRS financing. If you know that you will incur interest on the tax payment charged to your credit card, then you should consult your tax adviser about setting up a payment plan with the IRS instead. In many cases, the IRS will offer a lower interest rate than your credit card.

If you’re using a credit card to pay your taxes because you just don’t have the cash right now, a personal loan could also be of use and generally these loans come with interest rates lower than credit cards. Keep in mind you need good credit to be qualified for a personal loan at the best interest rates, so be sure to check your credit scores before you apply. You can see two of your credit scores for free every month on Credit.com.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

At publishing time, the Capital One Venture Rewards card is offered through Credit.com product pages, and Credit.com is compensated if our users apply for and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.

More on Credit Cards:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team