Paying Your Tax Bill With a Credit Card: What You Need to Know

Paying your taxes can be a major pain point for many people Between figuring out how much you owe, filling out all the paperwork, and actually getting the money together, it’s enough to give anyone a headache But what if you could simply pay your tax bill with a credit card to make the process easier?

In this article we’ll break down everything you need to know about paying your federal taxes with a credit card. We’ll cover the pros and cons fees involved, payment processors you can use, and some key tips to keep in mind.

The Benefits of Paying Taxes With a Credit Card

Using a credit card to pay your tax bill comes with several potential advantages

• Convenience: If you have a credit card, you don’t have to send checks or money orders to the IRS. You can pay online or over the phone quickly and easily.

• Rewards: Many credit cards offer cash back, points, or miles when you use them to make purchases. You can earn rewards by putting your tax payment on your card.

• Floating your payment: Paying with a credit card means you don’t have to pay the balance right away. This gives you a bit more time to have the cash available to pay off your credit card bill.

• Record keeping: When you pay your taxes with a card, you’ll have an easy record of the transaction on your credit card statement.

• Fees that can be deducted from your taxes: Fees for processing credit card payments for business taxes can be deducted from your taxes.

The Potential Downsides

However, there are also some drawbacks to consider:

• High fees: Credit card processors charge a “convenience fee” for tax payments which ranges from 1.87% to 1.98% of the payment amount. These fees can really add up, especially for larger tax bills.

• Interest charges: If you don’t pay off the balance right away, you’ll start accruing interest on the amount. This can make your tax payment even more expensive.

• Credit limit: You need to have enough available credit on your card to cover the full payment. Going over your limit for a tax payment will likely lead to fees.

• Refunds: The IRS will refund any overpayments to your card, unless you request otherwise. This means you won’t have the option to get overpayments back as cash.

Approved Credit Card Processors

The IRS uses third-party processors to handle credit card tax payments securely. There are currently three approved providers:

• PayUSAtax: Charges a flat $2.69 fee for debit payments or 1.87% for credit cards, with a $2.69 minimum.

• Pay1040: For consumer debit cards, charges $2.50 flat or 1.87% . For other cards, charges 1.87% with a $2.50 minimum.

• ACI Payments: Charges $2.20 for debit payments or 1.98% for credit cards, with a $2.50 minimum fee.

Each processor has their own website where you can make your payment. You can also call them to pay over the phone.

Key Tips for Paying Taxes With Credit Cards

If you decide to use a credit card to pay your federal taxes, keep these tips in mind:

• Compare fees carefully – Rates and minimums vary between processors, so compare to find the cheapest option based on your payment amount and card type.

• Understand the timeline – It takes the IRS 5-7 days to receive your payment from the processor. Don’t miss deadlines by waiting until the last minute.

• Save records – Keep all documentation showing you made the tax payment, including credit card statements.

• Pay early – Paying well ahead of the deadline gives you more time to resolve any potential issues with the processor.

• Don’t forget state taxes – Federal payments go through this system, but you may need to use a different method for state taxes.

• Have a plan to pay it off – Avoid expensive interest charges by having a strategy to pay off your credit card balance quickly.

Weighing the Pros and Cons

At the end of the day, whether or not paying your taxes with a credit card makes sense depends on your specific situation. The convenience and potential rewards do make it an appealing option for some taxpayers. But if you’ll struggle with the fees or don’t have a plan for paying off the balance quickly, it could do more harm than good.

Carefully consider both the benefits and drawbacks. Make sure you understand all the costs involved before choosing the best payment method for your needs. With the right approach, paying taxes with a credit card can be a helpful tool to make the process smoother.