Can You Pay Taxes With a Credit Card?
Editor’s Note: This article was originally published on Mar. 17, 2015.
If you owe back taxes to the federal government, you hopefully know the IRS offers options when it comes to paying them. There are many things taxpayers don’t know about paying taxes — including the fact that you can pay taxes with a credit card. Read on to learn more now…
You might wonder, “Can I pay taxes with a credit card?” You can, but there are many factors to consider before you pay taxes with a credit card, not the least of which is the cost.
How it works
The IRS doesn’t directly accept payments from credit cards, rather it authorizes several different independent companies to accept these payment on its behalf. You can find a complete list of these companies on the IRS website.
You can use credit or debit cards to make an income tax payment if they’re issued by:
- American Express
Although credit card payment surcharges are illegal in some states, the federal government is itself exempt from this particular law. The companies that accept payments charge credit card fees of between 1.87% and 2.35% of the amount paid, which is added on to the charge. So a person paying a $5,000 tax bill will incur a minimum of $93.50 in credit card fees.
When paying taxes with a credit card makes sense, and when it doesn’t…
Despite the high cost of paying these credit card fees, there are several different scenarios in which it may be a good idea to pay your taxes with a credit card. First, there are some credit cards that offer rewards worth more than the fees.
For example, there are cards that offer 2% cash back, or travel statement credits worth 2% of the amount spent. So if a taxpayer uses one of these credit cards, and avoids interest by paying his or her statement balance in full, then it is possible to enjoy the convenience of paying by credit card while coming out just slightly ahead.
In addition, there are ways that credit card users might receive some interest-free financing of their tax debt.
Also, there are some credit cards that offer interest-free promotional financing on new purchases for at least six months after the account is opened, or as long as 18 months. By putting some or all of the tax payment on an eligible account, taxpayers can further extend payment while avoiding interest charges.
But if taxpayers are trying to finance their tax liability using a credit card’s standard interest rate, then they will likely be paying more than if they used the IRS’s own installment program. This program requires the payment of a one-time fee and currently charges approximately 3.4% annually, a much lower rate than most credit cards offer.
By considering the advantages and disadvantages of paying taxes with a credit card, taxpayers can make the best decisions for their individual needs.
Do you need to report capital gains or losses associated with an estate? Learn more about Form 1041 Schedule D with help from the tax pros at H&R Block.
Find out what to expect from the Tax Reform changes made under the TCJA. The experts at H&R Block help you understand how the updates will affect you.
Get the facts about defaulted installment agreements from H&R Block, and learn how to fix the issue if you default your IRS installment agreement.
Get the facts about the IRS penalty for paying your taxes late (also called failure to pay penalty). Get the IRS definition and more insight from H&R Block.