That’s When You Have to Pay Taxes With a Credit Card
We’re in the final countdown to tax day (Tuesday, April 18), which means you should consider filing your 2022 tax return and paying your bill if you haven’t already. Most people are eligible to pay taxes for free , and if it turns out you owe money, there are several ways to avoid any processing fees when you go to pay your bill.
If you can deposit cash, it’s tempting to skip the credit card payment option in favor of an IRS direct payment portal that deducts money directly from a checking or savings account. With a direct transfer, you don’t have to send the government a single cent more than what you actually owe when you return. But there are some good reasons to put your tax bill on your credit card this year.
How much does it cost to pay taxes on a credit card?
The IRS partners with several third-party processors to accept credit card payments, and each charges a different transaction fee :
- payUSAtax: 1.85% (minimum $2.69)
- Pay1040: 1.87% (minimum $2.50)
- ACI Payments, Inc.: 1.98% (minimum $2.50)
This means that if you owe $1,000 to the feds, you will reduce your fees from $18.50 to $19.80 when you pay your bill with a credit card. Raise your debt to $5,000 and you’ll pay almost $100 extra for using a credit card.
When should you use a credit card to pay taxes?
Intentionally paying a processing fee may seem counterintuitive (and, if you follow the Ticketmaster saga, annoying), but in some cases, you can get more than you lost.
According to The Points Guy breakdown , there are several credit cards that can give you back more than 1% and possibly more than 2% of your tax transaction. If you have a card with a high earning rate (miles or cash back), it may cost you a fee.
Here are a few common cases where you should consider using a credit card to pay taxes:
- Your card rewards exceed the commission.
- You need to make a minimum deposit (coming soon!) to receive a welcome bonus or other card perks such as free hotel nights or elite airline status.
- You have an initial 0% APR on purchases, which means you don’t have to pay your bill immediately.
However, there are also a few downsides . Making a large bill on your credit card can result in large interest payments if you keep the balance. In addition, a significant increase in your credit utilization rate can affect your credit score. So keep that in mind when deciding how to pay this year.