Paying your taxes with a credit card is possible, but it requires some extra steps, several fees and shouldn't be done just to reap credit card rewards.
Using a credit card to pay your taxes is a potential last resort if you really can't afford your tax bill with the cash you have on hand. But before you decide to pay using plastic, know these fee implications.
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Can you pay your taxes on a credit card?
The short answer is that you can pay most types of taxes on a credit card. However, you will need to use a payment processor and pay a fee to the processor. The IRS lists your options for payment processors, which include:
- PayUSAtax.com: This processor charges a fee equal to 1.96% of the taxes you pay, with a minimum fee of $2.69. You can pay personal or business taxes online or call 844-729-8298 to make a payment.
- Pay1040.com: This processor charges a fee of 1.87% of the amount paid, with a minimum of $2.59. Again, you can pay personal or business taxes and do so online or at 888-729-1040.
- OfficialPayments.com/fed: You'll pay a fee of 1.99%, with a minimum of $2.50, if you use this service to make business or personal tax payments. The number is 888-872-9829.
You can also use an integrated e-file and pay service, which means that the service both files your return and allows you to pay taxes via credit card. The IRS lists two options for this service:
- fileonline.1040.com: This service charges a 2.35% fee, with a minimum of $3.95. The phone number is 888-877-0450.
- FileYourTaxes.com: You'll pay a fee of 3.93%, with a minimum convenience fee of $2, if you use this service to file and pay your taxes. You can get help by phone at 805-644-9398.
Whether you choose an integrated service or use a payment processor, there are limits to the number of times you can pay by credit card. For example, if you're making estimated tax payments using Form 1040-ES, you can make up to two credit card payments per quarter. But if you're paying your current or prior-year tax from your 1040 form, you're limited to two credit card payments per year, unless you're on an installment plan.
Most states also allow you to pay taxes on a credit card, although each state has its own rules on what credit card processors it works with or whether it accepts credit card payments at all.
Should you pay your taxes by credit card?
Although you can pay your taxes on a credit card, you'll need to decide if it actually makes sense.
If you were hoping to pay taxes on your card to earn rewards, it probably doesn't make sense once you factor in the fees you'll pay. Unless the rewards are more than the convenience fee, you'd actually lose money. And even if you earn 2% rewards or cash back and pay a 1.87% fee, it's usually not worth the hassle to net such a small amount of points or cash back. If you do put your taxes on your credit card, pay off the card in full when it comes due to avoid paying interest.
If you're considering paying on a credit card to avoid IRS late fees and penalties, be sure to do the math to confirm that it's actually cheaper.
Generally, interest on unpaid taxes starts accruing from the date the tax was due, and the interest rate equals the federal short-term rate plus 3 percentage points. If you're paying 17% interest on a credit card, chances are good that you'd pay more interest to your credit card company than you would to the IRS, even with penalties and interest factored in.
The IRS offers payment plans, including a short-term plan you can set up online with no setup fee, which allows you to pay your taxes in 120 days or less -- as well as longer-term installment plans with small setup fees that can be waived for low-income taxpayers. Signing up for one of these plans helps you avoid any risk of the IRS taking collection activities against you for late payments, without paying the interest that comes with putting your taxes on credit.
If you manage to get a credit card with a 0% promotional rate, you can charge your taxes with no interest and buy time to pay what you owe -- and the credit card fees to facilitate this could be cheaper than the IRS interest. In this rare case, it may make financial sense to charge your taxes. But pay off the balance before the promotional rate expires, because otherwise interest rates go way up.
Understanding your options for paying taxes by credit card
Now you know how to pay taxes on a credit card, and can decide if it's the best course of action. If so, you can use any of the IRS recommended payment processors to facilitate your payment. Just make sure to file taxes on time and pay as soon as possible in order to minimize the interest and fees.
