Can You Pay Taxes With a Credit Card?
Editor’s Note: 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 may wonder, “Can 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 Internal Revenue Service does not 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.
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. For example, almost all credit cards have a grace period that lasts between 21 and 25 days after the statement closes. So if a charge is made on April 15, and the card’s statement period closes on May 10 and has a 25 day grace period, then the payment could be due as late as June 4.
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.
Wondering how to use your tax refund? You can save your tax refund or pay down debt to improve your financial situation. Learn more at H&R Block.
Most Forms 1099-G are received for unemployment compensation or from state or local income tax refunds. Learn more from the tax experts at H&R Block.
If you receive a Form W-2G for gambling winnings, you must report the full amount of income shown on the W-2G on your tax return. Learn more from H&R Block.
The Statutory Notice of Deficiency is part of a series of notices sent by the IRS to propose additional tax, penalties and interest. Learn more from the tax experts at H&R Block.