Today is tax day, and if you’re rushing to file your return at midnight, it may be tempting to pay your taxes with a credit card. After all, you would have a breathing space until the bill was due, and maybe even earn rewards.
However, the IRS adds processing fees to credit card payments. And if you don’t pay your bill in full and on time, you could face serious interest charges.
Below, CNBC Select reviews the pros and cons of using a rewards credit card to pay your tax bill.
Can you pay taxes with a credit card?
Yes, you can pay your taxes with a credit card. The real question is, should you?
Unlike paying your taxes with a check or automatic wire transfer, credit card payments come with a processing fee. The fee is a percentage of your tax payment that varies depending on the payment processor you choose.
More help: Can’t pay your taxes? Here are your options
There is also a maximum number of card payments allowed based on your tax type and payment type.
What it costs to pay taxes with a credit or debit card
There are three IRS approved third party payment processors for debit and credit card payments. Each company has different fees:
PayUSAtax.com
- Credit card fee: 1.82% (minimum $2.69)
- Payment card fee: $2.14
- Accepted cards: Visa, Mastercard, Discover, American Express and more
Pay1040.com
- Credit card fee: 1.87% (minimum $2.50)
- Payment card fee: Minimum 1.87% or $2.50 for consumer/personal debit cards
- Accepted cards: Visa, Mastercard, Discover, American Express and more
ACI Payments, Inc.
- Credit card fee: 1.98% fee (minimum $2.50)
- Payment card fee: $2.20
- Accepted cards: Visa, Mastercard, Discover, American Express and more
Advantages of paying taxes with a credit card
Earn credit card rewards
If you use a rewards credit card to pay your taxes, you can earn cash back, points or miles.
For example, if you owe $1,000 to the IRS and pay it by credit card using the PayUSAtax.com payment processor, you will be charged a fee of 1.82% ($18.20). To recoup that fee and earn money, you’ll need a card with a return of more than 1.82% — which you can easily achieve by earning $20 or more in rewards with a 2% cashback card or 2X Travel Rewards short.
Read on: When it makes sense to pay your taxes with a credit card
A card like the Wells Fargo Active Cash® Card offers unlimited 2% cash rewards on every purchase. After subtracting the 1.82% fee from the 2% cash rewards, you’ll earn a profit of 0.18% on your $1,000 tax payment – which is $1.80.
That’s not a huge return, but it would be higher if you owe more. Plus, a single tax payment could easily qualify you for this card’s welcome bonus of $200 in bonus cash rewards after spending $500 in purchases in the first three months of account opening.
Wells Fargo Active Cash® Card
On Wells Fargo’s safe side
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Rewards
Unlimited 2% cash rewards on purchases
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Welcome bonus
Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months
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Annual fee
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Intro APR
0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 20.24%, 25.24% or 29.99% variable APR thereafter; balance transfers made within 120 days qualify for the introductory rate and 3% fee, then a BT fee of up to 5%, min: $5.
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Ordinary APR
20.24%, 25.24% or 29.99% variable APR
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Balance transfer fee
Intro price and fee of 3%, then a BT fee of up to 5%, Min: $5.
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Foreign transaction fee
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Credit required
Discover it® Cash Back
On Discover’s safe side
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Rewards
Earn 5% cash back on daily purchases at various places you shop each quarter, such as grocery stores, restaurants, gas stations and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases – automatically.
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Welcome bonus
Discover matches all cash back earned for all new cardmembers at the end of your first year.
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Annual fee
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Intro APR
0% for 15 months on purchases and balance transfers
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Ordinary APR
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Balance transfer fee
3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*
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Foreign transaction fee
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Credit required
Discover will also automatically match any money back you’ve earned at the end of your first year. This card earns 1% back on spending outside of its rotating 5% back bonus categories on up to $1,500 in combined purchases after you activate the bonus each quarter (1% thereafter). With the welcome offer, you will effectively earn 2% back on the tax payments you make in the first year.
The Wells Fargo Active Cash Card also offers a 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers (after that, a variable APR of 20.24%, 25.24% or 29.99% applies). Balance transfers made within the first 120 days qualify for an intro transfer fee of 3% of the amount transferred, then a fee of 5% of the amount you transfer (minimum $5) applies.
Meet the spend requirements for the welcome bonus offer
If you open a new credit card with a welcome bonus, charging tax on your card can help you meet the spending requirement. Before using a credit card, however, you need to do the math to see if the bonus outweighs the IRS processing fee.
The Chase Sapphire Reserve® has a welcome bonus offer of 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. If you charge $4,000 in taxes to the card using PayUSAtax.com, you will incur a processing fee of $72.80. Considering the bonus is worth $900 in travel when you redeem through Chase Travel℠, it might be worth it.
Chase Sapphire Reserve®
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Rewards
Earn 5X total points on flights and 10X total points on hotels and car rentals when you purchase travel through Chase Travel℠ immediately after the first $300 spent on travel purchases annually. Earn 3X points on other trips and restaurants and 1 point per $1 spent on all other purchases plus 10X points on Lyft rides through March 2025
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Welcome bonus
Earn 60,000 bonus points after spending $4,000 on purchases in the first 3 months from account opening. That’s $900 toward travel when you redeem through Chase Travel℠.
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Annual fee
-
Intro APR
-
Ordinary APR
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Balance transfer fee
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Foreign transaction fee
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Credit required
Disadvantages of paying taxes with a credit card
Processing Fees
Payments with credit card charges are subject to a processing fee. No part of the fee goes to the IRS, and the amount varies depending on the payment processor you choose.
If you’re paying with a credit card with rewards that don’t offset the fee, it doesn’t make sense to use a credit card.
Interest on unpaid balances
If you use a credit card to pay taxes, it’s important to pay your balance in full by the due date. Otherwise, you risk having to pay significant interest and even damage your credit.
High credit utilization rate
Paying taxes with a credit card can also hurt your credit score by increasing your credit utilization ratio.
To calculate your credit utilization ratio, divide your total credit card balances by your total available credit. If you have two cards with a total balance of $2,000 and a total credit limit of $10,000, your utilization rate is 20%. Adding a $2,000 tax payment to that would increase your utilization rate to 40%, which is high.
Frequently asked questions
Can I use a credit card to pay my taxes?
You can use a credit card to pay your taxes, but you pay a fee for the privilege. Before going this route, consider whether the rewards you’ll earn are worth it, and make sure you can continue to pay your card balance in full each month.
Does paying your taxes with a credit card affect your credit score?
Paying your taxes with a credit card will not directly affect your credit score. However, your overall debt and credit utilization ratio will affect your credit score. If you pay your taxes with a card and don’t pay the balance on the card, it can hurt your credit score.
What is the best type of credit card to use when paying your taxes?
The best type of credit card to use to pay taxes depends on the type of credit card rewards you prefer to earn. A cashback card that earns 2% back on all purchases is always a good option. A travel card that earns transferable rewards could be more valuable if you know how to get the most out of the points or miles.
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Bottom line
If your credit card rewards or welcome bonus offer offsets the IRS processing fee, it pays to pay your taxes with a card.
But if the fees outweigh any rewards, or you’re not sure you can pay off the card’s balance in full by the due date, stick with one of the free tax payment options, such as a bank transfer.
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For pricing and fees for Discover it® Cash Back, click here.
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