You've certainly wondered if the IRS permits you to pay your federal tax payment using a credit card, which sounds appealing if you don't have the money right away or want to earn rewards points.
But just because you can use a credit card to pay your taxes doesn't mean you should. Your credit card tax payment will be subject to processing fees and interest, potentially increasing your tax burden.
How Can a Credit Card Be Used to Pay Taxes?
If you determine that paying your taxes with a credit card is the best option for you, the procedure is very straightforward.
According to Josh Zimmelman, owner and CEO of New York-based Westwood Tax & Consulting, other stages include identifying the sort of taxes you're paying, entering your taxpayer information, payment amount, and credit card number, and completing the payment.
The IRS payment website includes a list of approved credit card processors as well as the requirements for using a debit card, credit card, or digital wallet. Here are the costs associated with accepting credit cards:
- Pay1040: 1.87% charge, with a minimum of $2.50.
- PayUSAtax: 1.96% fee, with a minimum of $2.69.
- ACI Payments: 1.98%, with a $2.50 minimum cost.
When you e-file using online tax preparation software such as TurboTax or H&R Block, you can also pay federal taxes using a credit card, but you may be charged even higher rates than with IRS payment processors. For example, H&R Block charges a 2.49% processing fee (minimum $2.50).
However, you are not required to pay the greater charge. Even if you file with a tax service, you can use one of the three approved credit card processors to make payments. You can also pay by credit card by calling the following phone numbers:
One rule to remember when considering paying your taxes with a credit card: In a calendar year, the IRS limits the number of payments you can make per tax form. In most cases, this equates to two credit card payments per year.
Is it Beneficial to Pay Taxes using a Credit Card?
Despite the additional expense, there are several advantages to billing your federal tax payment to a credit card. These are some examples:
Obtaining prizes. If you have a credit card that offers high rewards, you might use it to pay your tax obligation and then settle the remainder immediately. Just make sure you're earning more incentives than the processing fee. Processing fees have decreased slightly in recent years, but rewards have increased, suggesting that with certain cards, the advantages may outweigh the charge.
Obtaining a spending bonus Similarly, if your credit card gives a points incentive for spending a specific amount, your tax bill may be a large enough purchase to get you there. This is especially useful when it comes to achieving the high spending requirements for some lucrative travel rewards cards. Again, you must pay the debt on time to prevent incurring interest and losing the value of the bonus. You might also split your payment between two cards if you have a couple of cards with spending minimums that you're striving to meet.
Purchasing more time. Paying taxes with a credit card is frequently motivated by the necessity for funding rather than the opportunity for incentives. Zimmelman claims, "Over the years, we've had various clients who were unable to fulfil their tax responsibilities." We recommended that they apply for a new credit card that has a 0% interest rate for the first year.The only additional expense is the merchant processing fee." He adds that "this was a big savings" when compared to the interest and penalties associated with an IRS instalment plan. The objective is to pay off the loan before the introductory annual percentage rate term expires.
