10 Things You Need to Know About Paying Taxes with a Credit Card

Is it possible to pay your taxes with a credit card? Yes, and it could be a valuable move, depending on your situation, especially if you want to earn credit card rewards. But it might not make sense in every situation.

To help avoid potential money mistakes, consider the pros and cons of paying your taxes with a credit card.

To start, let’s discuss the good reasons you might want to pay your taxes with a credit card. If you have a large tax payment to make, whether it’s hundreds or thousands of dollars, it could be worth it to use a credit card to quickly hit a spending bonus.

Many of the best rewards credit cards offer generous welcome offers for spending a certain amount of money within a few months of getting approved. A big tax payment could help cover a portion or all of the spending requirements and net you some valuable rewards in return.

Apart from meeting the spending requirements on a credit card’s sign-up bonus, you might also consider using a credit card to pay for taxes if it earns rewards on purchases. Many of the best cashback credit cards offer rewards for any eligible purchases you make, which could include making tax payments.

You would typically need a high rewards rate on your credit card for this type of payment to make sense since all tax payments made with a credit card do come with a fee.

Taxes can be confusing, which means it might not always be easy to predict if you have to pay taxes or if you should expect a refund. In some cases, you might have to pay more than you may have calculated, which could put you in a financial bind if you don’t have much cash on hand.

In this scenario, it could make sense to make your tax payment with a credit card so you still have some cash available. Paying for taxes is necessary, but you likely wouldn’t want to clear out your savings in order to do so.

If one of your credit cards offers 0% APR on purchases, it might make sense to use that card for tax payments. This could give you some time to come up with the necessary funds to pay off your credit card, but also keep you compliant with paying your taxes.

Keep in mind that 0% APR credit cards typically only provide 0% APR for a certain amount of time. To help avoid racking up debt, be sure to pay off your card’s balance before the introductory offer ends.

Similar to using a 0% intro APR credit card to help extend your payment deadline, you might consider using the available IRS payment plans to cover your tax payments. These are plans the IRS provides to help individuals make multiple payments toward their taxes if they’re unable to pay the bill all at once. You can use a credit card to pay for taxes on these plans, which could offer additional flexibility with making your payments.

To start with the cons of paying your taxes with a credit card, the main disadvantage you would likely face is having to pay credit card fees. The IRS works with different payment processors to process any tax payments made with a credit card, and each of these companies charges a fee for each transaction you make.

The minimum fee is typically $2.50 per transaction, though you can often expect to pay close to 2%. If you want to earn credit card rewards for tax payments, you will need to calculate how much value remains after paying the required fees.

If you pay anything with a credit card, including your taxes, you run the risk of carrying a balance and accruing interest — with the exception of using a 0% intro APR credit card. But even with this exception, you likely have to pay interest at some point in the future if you don’t pay off your balance.

Since credit cards come with high interest rates, it’s typically best to ever avoid being in a situation where you might carry a balance and be on the hook for large interest payments.

Depending on your tax situation, you might have a large tax payment to make. If you put the entire amount on a credit card, you run the risk of negatively affecting your credit score. This could happen because of a high credit utilization, or using a large amount of your available credit.

Credit utilization is one of the most important factors to consider when making decisions about your credit. You also have to be sure you don’t miss any payments on your credit card, as a late payment could also negatively impact your credit score.

If you’re interested in using a credit card with one of the available IRS payment plans, be aware that the IRS has different limits in place for how often you can make tax payments with a credit card.

For example, you can typically make two credit card payments per year for most Form 1040 payments. However, if you’re making credit card payments for Form 1040 on an installment plan, you can do up to two credit card transactions per month.

Since tax payments might be larger than your everyday purchases, you might not have enough available credit on your card to cover the whole payment. Or, you might not want to tie up that much of your credit on one card.

To help resolve this issue, you might want to split your tax payment between two different credit cards. Since you’re typically limited to making two credit card payments per year for taxes, you could make a payment with one card and then later use another card to make a second payment.

Paying your taxes with a credit card is an available option, but whether it’s the right move for you depends on your situation. It could be a unique and creative way to get rewarded for payments you’re already planning to make. But it might not make sense if the fees are too high or your credit score goes down as a result of your credit utilization ratio.

Remember to consider the value of the rewards you could potentially earn, especially if you’re working toward completing a sign-up bonus on a credit card. For other helpful options for padding your wallet, check out these ways to make extra money.