The Ultimate Guide to Paying Taxes With Your Credit Card

The Ultimate Guide to Paying Taxes With Your Credit Card

No one likes paying taxes, but if you do it right, you can turn your tax payment into a little reward for yourself. We're not talking about avoiding fines, penalties, and jail time, though those are all great benefits of paying taxes, we're talking about credit card rewards.

You might be thinking, “wait? I can pay my taxes with a credit card?” Or you might have come across the option before, but wonder if it is worth it with all the fees. This article will dive into the details and explain to you not only where you can pay taxes with a credit card, but if it makes sense and how to get the biggest possible rewards when paying taxes with your credit card.

Paying taxes with credit card: logistics

To answer your first question: yes, you can pay taxes with a credit or debit card. The IRS currently contracts with three payment processors that allow you to pay with a card. It isn’t free, but it is a fairly simple process. You just have to login, add your taxpayer information, enter your card information and amount, and click pay.

Here is the basic information you need to know about the tax payment processors with the most common scenarios:

Name

Website

Credit Card Fee

Debit Card Fee

Pay1040

https://www.pay1040.com/

1.87%

$2.59

PayUSAtax

https://payusatax.com/

1.97%

$2.58

OfficialPayments

https://goo.gl/CcJnRm

1.99%

$3.95

Remember that each state, city, and county has its own tax payment rules. In fact, we paid my most recent county property tax bill via OfficialPayments. For the most part, this article focuses on Federal tax payments, but the rules generally apply across the board.

As credit card and travel hacking experts, we're always on the lookout for the best and cheapest ways to earn miles and points. Paying taxes with a credit card can help you earn thousands of points from regular spend (self-employment doesn't hurt either), plus many more miles from signup bonuses where taxes can help you reach the bonus threshold.

If you are comfortable with paying for things on the web, you should have no problem using any of these sites. Clearly the best option when paying with a credit card is Pay1040, as it has the lowest rates. Don't spend more at PayUSAtax or OfficialPayments unless you absolutely have to. Regardless of what you use, keep in mind that all three websites are somewhat less user friendly than big shopping sites like Amazon. But, if you are patient and can follow direction, you will figure it out soon enough, and future payments will be much easier.

Paying taxes with a credit card: costs

Let’s take a closer look at the costs of paying taxes with a credit card to figure out when it might make sense, and when it clearly does not.

The three vendors where you can pay charge different rates: 1.87%, 1.97%, and 1.99%. The cheapest is Pay1040, so you should never waste your money with PayUSAtax or OfficialPayments for a Federal tax payment. Whether it is a payment in April for your annual return or a quarterly estimated payment, the best rates come from Pay1040 as of this writing.

For a $1,000 tax payment, that is $18.70 in fees. While you can pay with a check for free or with a debit card for a lower cost, the $18.70 could be very well worth it if you have a compelling rewards card that earns you more than $18.70 in value.

Outside of using a points earning credit card with valuable rewards, you generally should not pay taxes with a credit card (or debit card) unless you are trying to pay in a hurry to avoid penalties or can’t afford to pay your taxes and plan to use a card to bridge the gap. I don’t advise paying credit card interest rates for tax payments, but that is ultimately your decision.

Paying taxes with a credit card: rewards

You should rarely base a financial decision on your gut instincts, and tax payments with a credit card are no different. Instead, compare your credit card rewards potential with the fees, and figure out which way you will come out ahead.

Serious travel hackers and credit card rewards enthusiasts know that each reward point has a unique value. Here are valuations for a few popular points earning programs as of December 2017 according to blogger The Points Guy:

  • Chase Ultimate Rewards: 2.2 cents per point
  • American Express Membership Rewards: 1.9 cents per point
  • Citi Thank You Points: 1.7 cents per point
  • Starwood Starpoints: 2.7 cents per point

At those valuations, you might come out ahead if you use a card that earns Chase Ultimate Rewards, American Express Membership Rewards, or Starwood Starpoints at one point per dollar or more. Using a card that earns Citi Thank You points would not be worthwhile, as you only get 1.7 cents of value for each 1.87 cents of costs.

Also keep in mind that this only works if you get the maximum value per point when redeeming. If you redeem a Chase Ultimate Rewards point for cash back, you only get 1 cent per point, which is less than the cost of paying with your card.

The only exception where it makes sense to pay with a card that earns fewer points than the cost is when you are working on a credit card signup bonus. For example, if you needed to spend $10,000 on an American Express Business Platinum card to earn a 100,000 point bonus and could put a big tax prepayment on the card to make sure you hit the $10,000 spending requirement by the deadline.

In our research, there is only one cash back card that is worthwhile for a tax payment, Citi Double Cash that pays you an effective 2% cash back on all purchases. In the $1,000 example above, you would earn $20 in rewards compared to $18.70 in cost, so you come out a little ahead.

Does paying taxes with your credit card make sense?

Paying taxes with a credit card absolutely makes sense for those who have the best credit cards that earn the most valuable points, and stretch their value even further through the redemption process. If you are just getting 1% cash back, or use an airline or hotel card with the exception of the Starwood Preferred Guest, you should probably skip paying taxes with your card.

Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated February 7, 2018 but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.


Editorial staff

Last updated: February 7, 2018