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Got a big tax bill, and wondering how to pay it? You can pay taxes with a credit card. If you do though, you’ll pay a processing fee. And depending on how you manage your credit card debt, could end up paying interest as well. So the better question might be, should you pay your taxes with a credit card.
Before we answer the “should,” let’s look at how paying your taxes with a credit card works.
Tax payment processors, such as Pay1040.com, PayUSAtax.com, OfficialPayments.com and let taxpayers pay tax bills using their credit cards and debit cards and are IRS-approved payments processors. Online e-file and software services provide access to these processors. The software gives you a credit card payment option when it’s time to select how to pay any taxes you owe.
All payment processors charge a processing fee to let you pay your taxes with a credit card. For the 2018 tax season, processing fees range from 1.87% to 1.99% of your tax bill or a minimum fee of $2.50 to $2.69, whichever is higher. OfficialPayments.com charges 1.99% or a $2.50 flat fee. PayUSAtax.com charges 1.96% or a minimum $2.69 fee. And Pay1040.charges 1.87% or a minimum $2.59 fee. All of the processors accept Mastercard, Visa, Discover and American Express.
Paying with a credit card is also a possibility if you used tax preparation software with built-in e-file, but you can expect the fees for this method to be just as high, if not higher, than paying with your credit card. TurboTax, for example, charges a 2.49 percent fee to pay with a credit card. You can pay with a debit card through TurboTax for a flat fee of between $2 and $3.95.
When paying with your credit card and don’t pay off your credit card bill the month after you pay, so you pay interest, you can end up paying twice what you paid for the processing fee in added interest charges on your credit card bill. The numbers can be even higher if you pay only the minimum balance due each month.
When you pay your tax bill with a credit card, the transaction is listed as “United States Treasury Tax Payment” on your credit card statement. And the processing fee that you pay the payment processor is listed as “Tax Payment Convenience Fee” or something similar.
Your payment is processed immediately—at least by the next business day—and the payment date is to the date the payment is authorized. While the payment is processed almost immediately, it can still take five to seven days for the IRS to post the payment to your tax account.
The answer is yes. You can use two different credit cards to make your payment. You do need to complete two separate transactions though—one for each card. You receive a different confirmation number for each transaction too. If you need to make a partial payment on your credit card rather than a full amount, you can do this as well.
You can also use your credit card to pay someone else’s tax bill, but that person’s own Social Security number must be used when the payment is made to the account.
If it takes you a few months or more to pay off credit card balance after you use it to charge your tax bill, make sure you choose the best credit card available to you. Choose your credit card with the lowest interest rate. Using a card with a 0% introductory interest rate and paying your full tax bill before the introductory period ends are ideal, because this allows you to avoid paying interest on your tax bill.
You may be tempted to reach for a rewards credit card to pay your tax bill, because the rewards, such as a cashback offer, will help to offset the processing fee you pay. Before you pull out a rewards card to pay your tax bill though, take a close look at the card’s interest rate and calculate how long it’ll take to pay the bill in full. Carrying a big balance on a rewards card with a high-interest rate may not be worth the rewards you earn.
Paying your tax bill with a credit card can affect your credit score depending on your tax bill compared to your total available credit limit. Using a credit card to pay your taxes can result in a higher credit utilization rate, which can negatively impact your credit score. The ideal mark for your credit utilization ratio is under 30% of your available credit.
There are pros—and other cons—to paying your taxes with a credit card. Learn more in Can You Pay IRS Taxes with a Credit Card?
If your tax bill so large that you can’t pay it off quickly or you don’t have a credit card with a low or 0% APR, there are better alternatives. Choosing another option to pay your tax bill is a good idea if it helps you avoid paying interest on a credit card balance on top of an already sizeable tax bill.
The IRS has payment plans for taxpayers who meet certain criteria. An installment can reduce, or eliminate altogether, penalties and interest. It’s worth your time to consider this option, especially if you’re already financially strapped. Learn more on the IRS payment plan and installment agreement page.
This article was last published January 23, 2017, and has since been updated by another author.
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