Find out which cards are best to use to pay your taxes. Make sure your rewards outweigh the IRS processing fees.
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The tax man cometh – soon. And if you owe, you must pay.
But what if you haven’t saved money all year to pay your bill like you planned?
Don’t panic – you can pay your taxes with a credit card, but you must weigh the pros and cons before doing so.
It’s important to choose the right card – one that will not only settle your bill, but also provide you with the best rewards.
After all, you need to try and earn the most points to offset the IRS online processing fee or you’ll be better off not using a credit card. Those pesky processing fees range from 1.87 percent to 1.99 percent, depending on which payment service you use. And that means for every $10,000 you pay, those fees will amount to between $187 and $199, a somewhat substantial price just to make a payment.
You’ll also want to look for a card that has an introductory 0 percent APR deal or a low interest rate, particularly if you can’t pay the balance from your tax bill in full. The average credit card APR is nearly 18 percent, according to the CreditCards.Com Weekly Credit Card Rate Report.
To help you decide, we asked experts to provide their picks for the best cards with which to pay your taxes.
Best credit cards to pay your taxes
See related: 1099-C surprise: Canceled debt often taxed as income
You might be able to actually make money
According to Sean Bryant, founder of One Smart Dollar, many people don’t know this, but you can actually make money when you pay your tax bill with a credit card.
First, it can be a quick and easy way to meet the minimum spend on a new credit card and earn a sign-up bonus.
In addition, some credit cards even give you the chance to earn elite status with airlines or hotels – with a spending requirement – so your bill will help you earn that.
And depending on the card you use, you can actually make money, Bryant said.
You just need to make sure the rewards you earn will be greater than the amount of your processing fee.
Bryant suggests using the Chase Freedom Unlimited to pay your taxes.
In addition to 1.5 percent cash back, you would get a $150 bonus for spending $500 in the first three months of opening the card. The card has no annual fee, and it also offers 0-percent interest on purchases and balance transfers for the first 15 months (then a variable APR of 17.24 percent – 25.99 percent). (Note: The $150 sign-up bonus is no longer available on the Chase Freedom Unlimited card as of April 4, 2019. The card now offers 3 percent cash back on your first $20,000 in purchases in the first year.)
Say you pay your $1,500 bill and tack on an extra 1.99 percent for the processing fee. That would mean you’re paying $29.85 in fees, which that $150 bonus (and the cash back points you earn) would more than offset.
This also works for other cards, such as the Wells Fargo Cash Wise Visa Card.
You’ll earn a $200 bonus for spending $1,000 in the first three months, so if you charge a $1,500 tax bill, that $200 bonus would certainly outweigh the $29.85 processing fee.
Use the Capital One Savor Cash Rewards Credit Card and you’ll earn a $300 bonus for spending $3,000 in the first three months.
If your tax bill happens to be $3,000, that means in the worst-case scenario you’ll be paying a processing fee of $59.70 – and getting a $300 cash bonus.
You can snag an even bigger bonus with a premium travel card
The best credit card to pay your taxes is a brand new one, said Simon Zhou, financial expert and blogger at CreditCardio.net. And travel rewards cards with big sign-up bonuses can help you come out even farther ahead after processing fees.
Sign up for a new credit card that will give you a great cash-back bonus or airline miles reward if you spend a few thousand dollars within your first months of membership. There are many to choose from, too.
If you have good-to-excellent credit, the Capital One Venture Rewards Credit Card gives you 50,000 miles if you spend $3,000 in three months. Since a Capital One mile is worth roughly 1.4 cents, the bonus amounts to $700 in travel spending.
The Bank of America Premium Rewards credit card is offering the same deal, but its 50,000-point bonus (after spending $3,000 in the first 90 days) is worth $500 in travel spending – still far outweighing the convenience fee you’d pay on a typical tax bill.
Cash back cards can offset processing fees, and you can avoid interest charges
Finding a card that can offset processing fees doesn’t have to be a complicated endeavor, said J.R. Duren, senior editor and personal finance analyst at HighYa.com.
Just ask yourself what you value more: cash or travel? Choosing cash is the simplest transaction, according to Duren.
You’ll get a certain percentage of cash back (1 percent to 2 percent, depending on the card) on the tax payment.
One good choice if you’re a cash back fan is the Citi Double Cash Card, which comes with 2 percent cash back on purchases (1 percent when you spend and another 1 percent when you pay) – that means you would get $200 in rewards for every $10,000 you pay in taxes.
Bonus: The card also comes with no categories or caps for earning, no annual fee and a 0 percent intro APR for 18 months on balance transfers (then 15.74% – 25.74% variable APR).
Duren also recommends using the Discover it® Cash Back for those who prefer cash back.
The rewards rate is 1 percent and, if you’re a new customer, Discover will match whatever you earn the first year.
So, if you’ve got a $10,000 tax bill and use your Discover card to pay it, you’ll get matched rewards totaling $200.
On top of that, you’ll get 14 months of 0 percent interest, which means you can spread out that bill over more than a year rather than having to pay it all back at once. If you don’t pay it off before the intro period ends, the regular variable APR is 14.24% – 25.24% variable.
A sly approach
Last year, its 5 percent quarterly cash back bonus for the second quarter applied to purchases made through PayPal, and the tax payment processor PayUSATax.com just happens to accept PayPal, among other digital wallet options.
This means you could use the Freedom to pay $1,500 of your tax bill – because the Freedom’s 5 percent cash back is capped at $1,500 in spending per quarter – and subtract even a 1.97 percent fee and your net gain would still be in excess of 3 percent.
Not a bad return for paying your taxes.
A caveat: Chase has not yet announced its second quarter 2019 categories, so you might not be able to take this approach. And, of course, if you want to pay your bill before April 1 you won’t be able to do it, either.
An off-the-beaten-path pick
This card has a rare category that provides 2 percent back on online purchases, and the IRS uses online payment processing companies to collect tax payments.
So, your tax payment would be eligible for that 2 percent cash back category just because you used your card to pay it online.
See related: Pros and cons of tax refund prepaid cards
Alleviate the anxiety
Tax time can be seriously stressful, especially if you don’t have the cash to pay your bill. But paying Uncle Sam with the right credit card can help you breathe a sigh of relief. It can help you buy time, it can be potentially interest free and you can reap some excellent rewards. Last, you won’t owe the dreaded IRS.
If you’re smart about choosing the right card to pay your taxes, it’s a win-win situation.