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Can You Pay Taxes With a Credit Card?
You can e-file your tax return. The Internal Revenue Service (IRS) website offers you the option to work out a payment plan if you need it. TurboTax walks you through the process step by step. You can even set up direct monthly payments to pay your taxes from your bank account. So with all of this incredible tax technology, why can’t taxpayers pay their federal tax bill with a credit card?
As it turns out, they can! Just not directly.
While the IRS itself does not directly process tax payments from credit cards, they work with multiple payment processors who do. Unfortunately, there are processing fees and other limitations when you pay your tax bill with a credit card that would not incur with other payment methods.
Are these convenience fees worth it come tax season?
Paying your tax bill with a credit card or debit card
The IRS website will direct you to three payment processors if you want to make a tax payment with a credit card. They are:
Each payment processor has different specifications regarding which cards or payment methods they can accept and how much they charge in fees or interest rates, which you can see here. Generally, using cards like Visa, Mastercard, American Express, and even Discover shouldn’t be a problem, but double-check before relying on this method to be sure.
Each of the previously mentioned payment processors charges a percentage of the amount you owe for credit card use. They will also charge a flat fee for debit card use. The bottom line: Paying your federal income tax by credit or debit card is very much possible.
Many states can also accept credit card payments for taxes owed to them, though you will have to check online to see if your state is one of them.
Of course, not all possible ideas in the personal finance world are good ideas.
Is handling your tax payment with a credit card a good idea?
It really depends on your specific situation.
If you are planning to use a credit card because you cannot afford your tax burden, putting it all on your credit card balance is really just prolonging the issue. While you may get the IRS off your back in the short term, you could end up backing yourself into a financial corner (depending on your credit limit and interest rate) as other expenses pile up.
If you are considering paying your federal tax obligation with a credit card, it’s most important to first examine the cost to arrange an installment agreement with the IRS, according to certified public accountant (CPA) Bret Scholl. “More often than not, especially for tax returns filed on time, the penalties and interest charged by the IRS can be much less than those of a credit card.”
Working out an installment plan with the IRS comes with a setup fee that may be higher than the credit card transaction fee; however, using a credit card still comes with a risk of accumulating interest charges if you aren’t able to pay off your bill in full during the grace period. Your personal situation will determine the pros and cons of each option, so be sure to carefully examine the math before deciding how to handle your tax bill.
Credit card benefits
While using a credit card to pay your taxes may add to your overall tax bill expense, it could be a reasonable option in the right circumstances.
“If someone has some noninterest-bearing credit card offers that cover the period they need [to pay off their tax bill], that can be an even better deal,” Scholl says. “It makes sense, especially for longer-term payment arrangements, to carefully compare what you would pay the credit card or loan company to what the IRS would charge you.”
Assuming you have good credit card habits and a rewards credit card, it might be beneficial to charge your tax bill if you are able to handle the fees. Cards that give you cash back or travel reward perks might (with an emphasis on might) provide benefits that outweigh the fees for using them, but you will have to do some math to figure that out.
We won’t go through a list of rewards cards, but when considering your options, look out for whether there is an annual fee and if that advertised sign-up bonus comes with an expiration date.
Remember: Your situation is unique to you
As always, everyone is different. The temptation to put a big tax bill on the credit card may be strong at times, but you need to analyze each situation with full awareness of possible benefits and consequences.
Finally, if you’ve been financially impacted by COVID-19, you can check IRS updates related to the pandemic here. The IRS has once again extended the 2021 filing deadline as they did last year, this time to May 17th. If you need an additional extension, you can also request one.
Bret Scholl has been in the practice of public accounting since 1981. Bret has worked with thousands of businesses and professionals to combine his high level of tax, finance, and business expertise with a client-centered approach. Together, Bret and his clients build lasting partnerships to create, grow, and sustain successful businesses and their owners’ personal finances.