Will you owe money when you file your taxes for 2020? If you're looking at getting a tax bill, you may be wondering if it's possible to use a credit card to pay the IRS. And the short answer is yes, you can pay your taxes with a credit card.
However, before you get out your card, there are a few things you need to know because doing so isn't always a good idea.
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How to pay your taxes with a credit card
If you're ready to file your tax returns and you owe money, your options for paying include:
- Paying with a bank account for free
- Paying with a debit card for a small fee (between $2 and $3.95)
- Paying with a credit card but incurring fees between 1.96% and 1.99% of the total amount you owe
The IRS doesn't accept debit or credit card payments directly, but rather requires you to use one of three third-party processing services. These include:
- PayUSAtax, which charges $2.55 for debit card payments or 1.96% for credit card payments (with a minimum credit card fee of $2.69).
- Pay1040, which charges $2.58 for debit card payments or 1.99% for credit card payments (with a minimum fee of $2.59).
- ACI Payments, which charges $2 for most debit card payments; $3.95 for debit card payments over $1,000; and 1.99% for credit card payments (with a minimum fee of $2.50).
These fees make paying taxes with your card very expensive. As a result, it most often makes sense to find a different option. However, there are a few exceptions to that rule.
When does it make sense to pay your taxes with a credit card?
If you qualify for a card that actually earns you more rewards than the fees you'd pay, charging your taxes may be worth doing. Say your card pays you 2.5% back. If you're paying $10,000 in taxes and incur a 1.96% fee for charging them, you'd still end up with $54 in rewards. Since it only takes a few seconds to submit a credit card payment, it may be worth doing. Just be sure to pay your card balance in full before incurring interest charges, which would dwarf the value of the small amount of rewards you'd receive.
If you're trying to land a new cardmember sign-up bonus, paying your taxes on a card could also be a good way to do it. Say you need to spend $2,000 in the first three months to earn a $500 sign-up bonus. Charging your IRS bill could get you there.
If you can't pay your taxes because you don't have the money, this may be another circumstance when paying with a card makes sense. If you can obtain a card with a 0% promotional interest rate on purchases for a period of time (say 12 months), you'd buy yourself time to pay your taxes off interest-free. This could be cheaper than an IRS payment plan or personal loan, as long as you're confident you can pay the card in full before you owe interest at the standard rate.
Outside of these situations, the fees associated with charging your taxes probably aren't worth paying. And if there's any chance you won't be able to fully repay taxes you charged before interest starts accruing, you'll definitely want to steer clear. Card interest rates can be extremely expensive and there are cheaper ways to handle tax debt besides charging it.
