Should You Pay Your Taxes With A Credit Card
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This page includes information about the Discover It Miles that is not currently available on The Points Guy and was not provided by the issuer.
As Benjamin Franklin famously declared, In this world, nothing is certain except death and taxes. His words are as true today as when he wrote them over 200 years ago. For those who make quarterly payments or who requested an extension through Oct. 15, 2022, this is probably at the forefront of your mind right now.
Perhaps youre wondering if its worth it to charge your taxes to a rewards credit card so you can earn cash back or points toward travel as you pay your dues to Uncle Sam. Although you will generally get dinged with service charges and other fees for using a credit card to pay your taxes, it can still be worthwhile for a few reasons.
For instance, you might need to hit a minimum-spending threshold to earn the welcome bonus on a new card or to score a spending-based perk like elite-qualifying miles with an airline card or a free night award with a hotel card. Or maybe you have a card thats offering 0% APR on purchases for a certain timeframe, so you have some breathing room to pay off your tab.
There are plenty of reasons why you might want to pay your taxes with a credit card, but also several caveats. Heres what you need to know as you consider your options.
Should You Pay Taxes With A Credit Card For Points
This really depends on how many points the specific tax payment will earn you, and whether the value of those points outweigh the processing or convenience fees incurred for this type of payment. The idea of paying the IRS with your credit card and having a way to also earn back points is a fun one, but it does require caution and weighing fees wisely.
Read More: The 6 Best Tax Software Programs
To view rates and fees for The Platinum Card® from American Express please visit this page.
To view rates and fees for The Blue Business® Plus Credit Card from American Express please visit this page.
Hit A Spending Threshold By Paying Taxes With A Credit Card
For those not looking to sign up for a new credit card, there are still potential milestone spend levels that earn notable travel perks. For example, Hilton Honors American Express Surpass® Card cardholders earn a Weekend Night Reward after spending $15,000 on purchases on their card in a calendar year.
As with the example above, you can pay just $280.50 in fees to make a $15,000 tax payment. The ability to earn a free weekend night at any Hilton portfolio property worldwide at this price can be an absolute steal. Without even leaving the United States, many of Hilton’s luxury hotel properties charge rates twice or even three times as high as the processing fee. And don’t forget that you’ll also earn 45,000 Hilton Honors points worth $274.50 based on recent AwardWallet user redemptions.
Additionally, the JetBlue Plus Card offers cardholders the opportunity to spend their way to Mosaic status. You’ll have to spend $50,000 in a calendar year on the JetBlue Plus Card to earn this elite status. However, JetBlue loyalists may find a great deal of value and convenience from this status. A single federal income tax payment might not be enough to reach this high spending threshold, but it could offer a shortcut to getting there.
Related: How to earn JetBlue Mosaic elite status
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Twice As Many Potential Payments When Filing Jointly
If you file jointly with a partner, you can make payments in each persons name, separately. These payments will still apply to the one overall tax return, but not always automatically. According to reader reports, in some cases the IRS matches these payments to the combined return automatically. In other cases, people have reported the need to call the IRS to ask them to combine the payments. I recommend calling shortly after filing your annual taxes to ensure that the IRS has correctly applied both sets of payments to the same return.
Obviously if you are filing separately, you can each make your own payments without any issues.
Be Careful Of Your Credit Score
Theres one other downside to paying taxes on a credit card: You could hurt your . This is an important factor in your credit score. You calculate it by dividing your balance used by credit available. If it goes above 30%, your credit score suffers.
If you have $10,000 in available credit and charge a $10,000 tax bill, youre using 100% of credit available to you so your utilization ratio becomes 100%. This could lead to a big drop in your credit score until youve paid down your debt.
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What Is The Best 25% Cash Back Credit Card
The best 2.5% cash back credit card is the Alliant Cashback Visa® Signature Credit Card. Cardholders earn 2.5% cash back on the first $10,000 per month and 1.5% otherwise, and the cards annual fee is $0.
To get the card, youll need to be a member of the Alliant Credit Union, but its not difficult to join. Some people are eligible for free, and everyone else can qualify with a $5 donation to Foster Care to Success. Youll also need excellent credit to be approved for the card.read full answer
Currently, there are no other credit cards offering a flat 2.5% cash back rewards rate on all purchases. But there are cards that offer even higher earning rates in specific spending categories.
Best 2.5%+ Cash Back Credit Cards
Can I Pay My Taxes In Installments
Yes, it is possible to request an installment agreement through the IRS if you believe you will be unable to pay your taxes in full by the required deadline. This is a payment plan approved by the IRS that allows for either short term or long term installments to be paid. It is important to remember that the longer a payment plan, the more you may incur in interest and late payment penalty fees.
You can also pay your taxes throughout the year ahead of time by making estimated tax paymentswhich are required for the self-employed. If you have trouble setting away money throughout the year to pay at tax time, consider making regular payments each quarter instead.
Read Also: Out Of State Sales Tax
The Best Credit Cards For Paying Your Taxes
- Ink Business Unlimited Credit Card: Best for businesses with an Ultimate Rewards-earning card.
- Discover it® Miles: Best for cash back during the first year.
- Capital One Spark Miles for Business: Best business card for straightforward rewards.
The information on the Discover it Miles has been collected independently by The Points Guy. The card details on this page have not been reviewed or approved by the issuer.
Heres what you need to know about paying your taxes in 2022 with a credit card.
Capital One Venture X Rewards Credit Card
The Capital One Venture X Rewards Credit Card offers a hefty welcome bonus of 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening. If you use your tax payment to help meet the minimum spending requirement, it can be worth it, because the bonus is worth at least $1,275 in travel, based on Insider’s valuation of Capital One miles and potentially much more if you transfer your miles to Capital One’s airline and hotel partners.
Review: Capital One Venture X card review
The Capital One Venture X Rewards Credit Card earns 2 miles per dollar on most purchases, including tax payments. Each mile is worth 1 cent in credit toward travel purchases, so you can come out marginally ahead with this card even if you don’t consider the welcome bonus offer.
It’s packed with premium benefits that can more than offset the $395 annual fee, including up to $300 per year in statement credits toward travel booked through Capital One, Priority Pass, Plaza Premium, and Capital One airport lounge access , a 10,000-mile bonus on each account anniversary , and Visa Infinite travel and purchase benefits.
Also Check: Tax Return Taking Longer Than 21 Days
Should I Pay My Taxes With A Credit Card
If the processing fees outweigh the rewards you could earn, paying your taxes with a credit card probably isn’t worthwhile. However, if you value the convenience of using a credit card or find an attractive signup bonus offer, consider using your card. Tax bills may be expensive, and so can interest charges if they rack up. Your financial health depends on using your credit card effectively.
Are Tax Payment Fees Deductible
Fees are no longer deductible for personal taxes: Tax preparation fees used to be deductible when itemizing deductions for personal tax returns, but that is no longer the case.
Card processing fees are tax deductible for business taxes: This can substantially reduce your net cost of using payment services.
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American Express Blue Business Cash Card: Best For Business Taxes
- Welcome bonus: Earn a $250 statement credit after you make $3,000 in purchases on your Card in your first 3 months.
- Rewards: Earn 2 percent cash back on the first $50,000 you spend on eligible purchases each year, then 1 percent back
- Perks: 0 percent intro APR on purchases for 12 months, followed by a variable APR of 13.49 percent to 21.49 percent
If you need to pay business taxes with a business credit card, the American Express Blue Business Cash Card is a fine option. This card gets you 2 percent cash back on the first $50,000 you spend each year on eligible purchases . This means that paying a $3,000 tax bill within three months of signing up would leave you with $60 in rewards in exchange for the $57.90 fee at 1.99 percentessentially helping you break even.
Also, keep in mind that youll get an introductory 0 percent APR on purchases for 12 months, followed by a variable APR of 13.24 percent to 21.24 percent. If you need a while to pay off your tax bill without any interest, this card gives you the perfect opportunity.
Chase Sapphire Preferred Card: Best For A Big Sign
Why we picked it: You can snag an even bigger bonus with a premium travel card. Travel rewards cards especially have some of the largest sign-up bonuses, and the current sign-up bonus of the Chase Sapphire Preferred® Card is an impressive deal. After you spend $4,000 in the first three months, Chase will give you 60,000 points. Factoring in that the Chase Sapphire Preferred bumps your point value to 1.25 cents per point when redeemed for travel on the Ultimate Rewards portal, your welcome offer is worth $750 in travel.
That $750 should more than eclipse the convenience fee youd pay on a typical tax bill. The card also earns reliable rewards with 5X points on Chase Ultimate Rewards travel, 3X points on restaurants, select streaming sites and online grocery purchases and 2X points on all other travel purchases. Even after tax season, this card will continue to bring you value.
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To Meet Minimum Spending Requirements For A New Cardmember Bonus
Many credit card issuers provide a generous bonus if you open a new card and spend a certain amount of money in a specific time period. For example, with the Capital One Venture Rewards Credit Card you can earn a one-time bonus of 75,000 miles once you spend $4,000 on purchases within 3 months from account opening. Depending on how you redeem those bonus miles, thats worth at least $750 toward travel.
If you dont usually charge much, earning this spending bonus might not be possible. But if you pay $3,000 of your tax bill on your card, you could fulfill the requirement. If you pay a 1.87% fee to charge this $3,000, youd pay $56.10. Youd still be $693.90 better off thanks to the $750 toward travel youd earn.
Paysimply And Municipal Taxes
With PaySimply a Canadian company- you can pay many bills with a credit card.
Named as one of Canadas best managed companies, it is a partner with the Canada Revenue Agency and Canada Post.
The fee is 2.5% and is lower than Plastiq.
If your city is not available on Plastiq, you can use this solution ! Large and smaller cities are supported for payment by Mastercard, Visa and American Express such as Montreal, Quebec or Saguenay.
This is a great option for paying your municipal or school organization.
Recommended Reading: Tax Filing Deadline 2021 Extension
Heres How To Pay Your Taxes With A Credit Card And The Best Cards To Use
Its tax time! After several years of delayed due dates, the Internal Revenue Service is sticking with its traditional deadline this year to file and pay your personal 2021 taxes . And if you expect to owe taxes this year instead of getting a refund, you might be wondering if it makes sense to pay your taxes with a credit card.
Paying your taxes with a credit card may sound like a dangerous idea, but there are times when it can make sense. For example, lets say youre in a situation where you expect to have the money to pay your taxes but not until a few weeks after the IRS deadline. You can use a credit card as a short-term loan to cover what you owe, then pay your credit card bill when you actually get the cash.
You could also take advantage of a in order to spread your tax payments out over months or even a full year. While the IRS itself offers payment plans, the agency will charge you interest for paying over time, which you can avoid by paying with a 0% interest credit card.
Another reason people pay their taxes with a credit card is to earn extra credit card rewards. There are fees involved in doing so, but if you can rack up enough rewards to make them worth more than the fee, you can still end up ahead, so long as you pay your credit card bill in its entirety by the due date to avoid racking up a lot of interest.
Types Of Rewards That Are And Are Not Income
Often, the kind of reward received dictates its taxable status.
Many never involve an exchange of cash. Types of common credit card rewards that are treated in this manner include travel miles, accumulated points toward future purchases, and reward discounts automatically applied as balance credits. So, without cash being directly received, these sorts of rewards are non-taxable, it’s generally safe to say.
Sign-up bonuses for getting a new credit card can possibly be different. Some of these bonuses do not require that you make any purchases or charge any amount to your card. If these sign-up bonuses are given to you directly in cash for just opening the account, then they might be taxableas extra unearned income. They can’t be considered a refund, since you didn’t actually spend any of your own money.
So, where do cash-back reward programs fit in? It varies. If a cash-back reward is credited directly to your credit card account, then the income is generally considered a nice rebate that comes with the benefit of using the card. If you actually receive a cash-back check directly, though, it gets a little trickier: It probably also would be considered a type of rebate, but it could technically count as income.
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How To Pay Local Taxes With A Credit Card
You may also owe local taxes. These could be owed to your township or municipality. Visit the website of the local taxing authority or contact it via phone to find out whether you can pay your taxes with a credit card.
For example, if you live in Hillsborough County, Florida, search Hillsborough county taxes. This would bring you to the website of the Hillsborough County Tax Collector. On this website, youd see services you could use to process payments, including:
- TouristExpress to pay tourist development taxes
- RenewExpress to pay vehicle renewal taxes
- BTExpress to pay business taxes
Each county tax website will have its own payment processors, some of which may facilitate credit card payments.
Earning A Big Credit Card Sign
Many rewards cards extend welcome offers including hundreds of dollars worth of cash back or tens of thousands of points if you spend a certain amount of money on your new card within a specific timeframe.
The fact that you can earn a points windfall from your initial spending with a new card is the single most significant reason to use a credit card when paying a sizable tax bill. Thats because the value of the points you earn can help offset the cost of fees for using your card for your taxes.
Some travel rewards cards have especially high minimum spending requirements for earning a bonus, so a tax payment might be just the thing to put you over that threshold.
For example, The Business Platinum Card from American Express is currently offering new applicants the ability to earn 120,000 Membership Rewards® points after you spend $15,000 on eligible purchases with the Business Platinum Card® within the first three months of card membership. For its part, the Ink Business Preferred Credit Card offers 100,000 Chase Ultimate Rewards points after you spend $15,000 on purchases within three months of account opening.
Spending $15,000 in three months might be tough for some small-business owners. But if you put a $15,000 tax payment on your card to earn 120,000 points on the Amex Business Platinum or 100,000 points on the Ink Business Preferred, you could pay as little as $280.50 in fees .
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