Wondering if you can pay taxes with a credit card?
The answer is “yes” but there are a couple reasons you may want to think twice before doing so!
You can pay your tax bill with a credit card — but here’s what you need to know
Credit card expert Jason Steele says some people consider paying their federal taxes by credit card to accumulate credit card points or miles on a big outstanding tax bill, but that might not be the best idea.
“When you use a credit card to pay your taxes, you will have to pay convenience fee that’s calculated as a percentage of the amount paid. Currently those fees range from 1.87% to 1.99%, depending on the processor you choose. In most cases, this cost will be greater than the rewards you earn.”
In addition to those fees, it’s important to remember that if you’re going to rack up interest charges because you can’t pay your tax bill in full, then it is definitely a no-go.
In that case, you’re better off contacting the IRS to set up a payment plan — they’ll work with you. In the case you’re ready to pay up, there are options.
Here are the ways you can pay the IRS
As we head closer to the April 15 deadline for paying taxes, many taxpayers are finding that they’re getting smaller refunds than expected. Some are finding that they owe money, especially if they didn’t adjust their 2018 withholding to account for the new tax law.
The latest numbers from the Internal Revenue Service (IRS) show the average tax refund issued so far this year is down 8.4% to $1,865 compared to the same time last year.
For those who owe, the IRS makes several payment methods available:
- Debit or credit card (fees apply)
- Direct pay with bank account (free)
- Pay on the IRS2Go Mobile App (free)
- Electronic Federal Tax Payment System (free)
- Electronic Funds Withdrawal (during e-filing)
- Same-day wire (bank fees may apply)
- Check or money order
- Cash (at a retail partner; fees apply)
Now let’s take a closer look at what paying with credit card or debit entails…
Fees to pay taxes with a credit card or debit
Here’s what the three authorized payment processors that the IRS contracts with to process plastic payments will charge you:
|Payment processor||Fee to pay by debit card||Fee to pay by credit card|
|PayUSAtax.com||$2.55 flat fee||1.96% fee, Minimum fee of $2.69|
|Pay1040.com||$2.58 flat fee||1.87% fee, Minimum fee of $2.59|
|OfficialPayments.com/fed||$2.00 flat fee ($3.95 if over $1,000)||1.99% fee, Minimum fee of $2.50|
None of theses service fees — which may, in fact, be tax deductible — go to the IRS itself. But the fees are something to be aware of when you’re getting ready to whip out that plastic.
Another thing to note is there may be some impact to your credit score if you pay a big tax bill and drastically increase the amount of credit you are using.
Let’s say you only have one credit card with a $3,000 credit limit. If you owe $3,000 to the IRS and charge that card up to the max to pay Uncle Sam, it means you’ll be using 100% of your available credit overnight.
Even if you pay that bill on time every month, having anything above a 30% credit utilization rate will drive down your credit score. That factor impacts nearly a third of your score, according to myFICO.com.
So, if you were thinking that paying your tax bill would be a good way to hit a credit card spending goal or to rack up rewards, it’s important to factor in those processing fees and the potential impact to your credit score.
If you can’t pay your tax bill in full and would rack up interest charges if you put it on a credit card, then you’re probably better off contacting the IRS to propose a payment plan to get your debt paid down over time.
Money expert Clark Howard says as long as you make plans to pay the IRS what you owe them over a 12-month period, they’ll typically approve your payment plan without any hassle.
“The interest rate you owe when you pay your taxes off over time is very, very low,” he says. “So you can feel comfortable that you’re going to be A-OK with the IRS as long as you file that return and pay what you can.”