Can I Pay My Tax Bill With a Credit Card?

Paying your taxes is an unavoidable reality for most people. While no one likes owing money to the IRS how you pay your tax bill can make a difference. One payment option that often gets overlooked is paying your taxes with a credit card.

Is It Possible to Pay Taxes By Credit Card?

Yes, you absolutely can pay your federal income taxes using a credit card The IRS allows taxpayers to pay their tax balance due by credit card through authorized third party payment processors. This includes payments for

• Individual tax returns (Form 1040)
• Business tax returns (Form 1120, 1065, etc)
• Quarterly estimated taxes
• Any other balance due notice from the IRS

You cannot use a credit card to make federal tax deposits for payroll or excise taxes. Those must be paid electronically through the Electronic Federal Tax Payment System (EFTPS). But for income taxes, credit cards are an accepted form of payment to the IRS.

The IRS works with several payment processors that accept credit cards. Some of the most popular options include Pay1040, PayUSATax, and ACI Payments. You can pay your balance due online through the processor’s website or over the phone.

What Types of Credit Cards Can I Use?

The payment processors accept most major credit card brands, including:

• Visa
• Mastercard
• American Express
• Discover

Some also accept debit cards and digital wallets like PayPal.

As long as your card falls under one of the major brands above, you should be able to use it to pay the IRS. Make sure to check with the processor first if you have any doubts.

Are There Fees for Paying Taxes With a Credit Card?

Yes, unlike paying by check or bank transfer, using a credit card to pay taxes comes with processing fees. The fees go to the third party payment processor, not the IRS.

The exact fee depends on a few factors:

• Payment processor – Each processor charges slightly different fees
• Card type – Fees are lower for debit cards than credit cards
• Payment amount – Fees are calculated as a percentage of the total payment, so larger payments have higher fees

To give an example, Pay1040 charges a flat $2.50 fee for debit card payments. For credit cards, it’s 1.87% of the payment amount with a $2.50 minimum.

So on a $1,000 tax payment, the fee would be:

• Debit card – $2.50
• Credit card – $18.70 (1.87% of $1,000)

While not outrageous, these processing fees can add up, especially on large tax bills. Make sure to factor them in when deciding whether to pay by credit card.

When Does It Make Sense to Pay Taxes With a Credit Card?

Using a credit card to pay taxes can make sense in certain situations:

1. To Earn Rewards

The main reason to pay taxes with a credit card is to earn rewards like cashback, points, or miles. This allows you to offset some of the processing fees.

For example, a 2% cashback card would earn $20 back on a $1,000 tax payment. That almost covers the $18.70 processing fee.

Just make sure your rewards outweigh the fees. Also pay off your balance in full to avoid interest charges.

2. To Meet a Minimum Spend for a Bonus

Many credit cards offer lucrative signup bonuses if you meet a minimum spending requirement within a certain timeframe.

For instance, you might get 50,000 points if you spend $4,000 in the first 3 months. A large tax payment could help you hit that threshold quickly.

Again, ensure the bonus value exceeds the fee cost before doing this.

3. To Hit a Credit Card Limit

Some businesses need to make very large estimated tax payments each quarter. If a payment exceeds their bank account balance, paying by credit card can help cover the amount due.

This is really only recommended as a last resort though. The fees on a big payment will be very high.

4. To Get a Short-Term Loan

When you don’t have the cash on hand to pay your tax bill immediately, a credit card essentially provides a short-term loan. This gives you a month or two before the credit card payment is due.

Just be very careful with this approach. You don’t want to pay interest on a carried credit card balance. Make sure you have a plan to pay off the balance quickly.

How Do I Pay My Taxes With a Credit Card?

The process of paying taxes by credit card is straightforward:

1. Determine your balance due – Calculate your total tax obligation for the year or quarter minus any refundable credits, payments, or withholding. This is the amount you need to pay.

2. Select a payment processor – Review the IRS list of authorized processors and choose one with acceptable fees for your payment amount and card type.

3. Provide payment details – On the processor’s website or through their automated phone system, input your credit/debit card information along with details like your name, SSN, and the tax form and year.

4. Submit payment – Authorize the processor to charge your card for the balance due amount plus their processing fee.

5. Record the transaction – Note the payment in your records along with the processing fee amount. The fees may be tax deductible.

6. Pay your credit card bill – When your statement comes, be sure to pay off the balance in full to avoid interest charges.

And that’s it! The payment processor will send your tax payment to the IRS electronically usually within 1-2 business days. Then you simply have to pay off your credit card bill.

What Are the Drawbacks of Paying Taxes With a Credit Card?

While credit cards offer an alternative way to pay the IRS, there are some downsides to be aware of:

• Processing fees – The fees ranging from 1.5% to nearly 2% are an added cost you don’t have with other payment methods.

• Credit card interest – If you carry a balance on the card, high interest rates of 15% or more can accrue. This negates any benefit of rewards or signup bonuses.

• Lower limits – Credit cards have preset spending limits that may be lower than your tax bill. This restricts how much you can put on the card.

• Refund delays – Refunding an overpayment to your credit card takes extra time. The IRS says to allow 5-10 business days for the refund to post to your account.

• Payment risks – Inputting your card details online for a big payment can make some people uneasy due to potential security concerns.

For many filers, the cons of paying taxes with a credit card outweigh the pros. But for some, the ability to earn rewards while getting a short-term loan from the card issuer can make sense. Assess your own situation carefully.

The Bottom Line

Paying your taxes by credit card is completely allowed by the IRS through authorized third party processors. While not the most cost effective option due to processing fees, it can make sense to earn rewards or hit minimum spend requirements. Just be cautious of interest charges if you fail to pay off the balance quickly.

For most filers, a bank transfer or check payment is still the easiest way to pay taxes. But for the rewarding benefits or short-term financing, credit cards present a viable option to cover your tax bill with Uncle Sam.