Paying taxes with a credit card

Things you can put on your credit card: Socks, Chipotle, and your taxes.

I was also surprised when I first learned that Uncle Sam accepts Visa, Mastercard and Amex. I kind of assumed he was a “Direct Deposit ONLY” type of guy.

But no; You can pay by card on IRS.gov just as easily as on Amazon.

The question is: must You?

You might think that this is not difficult – I will receive a refund of 1.5% of my taxes. Well, you will and you won’t.

Paying taxes with a credit card is more difficult – there are pros and cons, and it can be ideal for some people and dangerous for others.

Benefits of paying taxes with a credit card

Your awards May still exceeds the processing fee

Yes, it’s a bummer that the IRS’s payment processing fees basically outweigh your 1.5% or 2% cashback fees. I mean technically it’s 1.96% so you can save a whopping amount. 0.04% your taxes—or $4 for every $10,000 you owe.

I think if you had a good year and owed $20,000 in taxes, you could earn enough to return a plate of Chipotle burritos.

V rare cases however, you can get more than 2% cash back.

Get a welcome bonus

Another reason to pay taxes with a credit card is to help you reach the spending threshold for a welcome bonus.

This is a particularly useful hack for top tier business reward cards, as their welcome bonus spending requirements tend to be high.

For instance, Credit Card Ink Business Cash® offers a $750 welcome bonus for spending $7,500 over three months. This lot for a small business, but not if you pay taxes on it!

Take advantage of 0% APR

If you are worried about the possibility give your taxes, putting them on the card with 0% APR, can give time and relieve stress.

Take any card from our list Best credit cards 0% per annum. If your taxes are within your spending limit, you can put them on your card and take as long as you need during the 0% APR period to pay them back without interest.

Cons of Paying Taxes with a Credit Card

Your taxes may exceed your credit limits

Here’s a big consideration: Do your expected taxes fall within your credit card spending limits?

If you just got a new credit card right out of school, your spending limits can be pretty low, like $3,000 or $5,000. If you have secure cardthey are probably even lower.

But don’t worry – if your expected taxes are within a few thousand of your credit limit, you can simply ask your bank to increase your limit.

If not, then your card may simply be rejected by the IRS, or you may face fees in excess of the limit. Be sure to talk to your bank before you find out the hard way!

Processing fees may void rewards

As mentioned, if you are solely interested in rewards, you must ensure that your credit card rewards will meet or exceed IRS fees.

If you get an unlimited cash back of 1.5% but settle for a 1.99% payment processing fee, you only lose 0.49% of your taxes, which could be over $100!

Huge credit card balance is a liability

As with any major credit card purchase, you’ll need a solid tax plan. If you have 0% per annum, you are not in a hurry, but if you no need, the clock is ticking before a regular APR kicks in and bites you in the ass.

For example, if your card has 26.99% APR and you forget to pay your $5,000 tax bill by the end of the month, your balance with interest next month will be $5,112..

Phew.

So, if If you decide to pay a large tax bill with a credit card, you will definitely want to set up autopay.

It can damage your credit history.

30% off your credit score comes from your “loan usage” or how much of your current credit you are currently absorbing. If you’re maxing out your only credit card for your taxes, well, that’s really high credit usage, which can affect your credit score.

Your credit score is now must heal over time once you pay your taxes and get your balance back to zero. Plus, there are other ways to fix your credit history – we’ve rounded up some of the best in How to build credit.

But it is very likely that if you make the most of your card to pay taxes, you will receive a temporary penalty. This is very important to keep in mind if you applying for a car loan, mortgageor you want refinance student loans anytime soon.

Verdict: Is it worth paying taxes with a credit card?

You may want to pay your taxes with a credit card if…

Being able to pay over time using 0% APR is worth the risk to your credit history.

If you cannot afford the IRS lump sum payment, and their installment plans don’t fitfunding your taxes with a 0% annual period can be a solid strategy.

This could also worth it if you want to reach the spending threshold for a big signup bonus. Some top tier business cards have bonuses ranging from $750 to $1,000.

Personally, I wouldn’t risk my credit score on that amount unless I really needed the cash, but I could if my taxes due were within my credit limit (i.e. $5,000 in taxes on a card with a $12,000 limit).

You probably shouldn’t be paying taxes with a credit card if…

You participate solely in monetary rewards.

Sure, your cashback percentage may exceed the IRS fees, but is it really worth risking your credit history or skipping a payment?

Probably no.

Summary

Paying taxes with a credit card could makes sense if you really need to fund them with 0% APR and/or get that welcome bonus to pay off some other debt.

But in most cases, the 2% payment processing fee, combined with the risk of your credit score being lowered, means it’s probably not worth paying taxes with the card.

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