BACK

fizkes / iStock / Getty Images Plus

Balance Transfers

Should you pay your taxes with a credit card?

While a credit card can be a convenient way to cover your tax bill, make sure you understand all the ways it will cost you

Summary

Paying your taxes with a credit card can help you earn rewards and get more time to pay off a high tax bill. But beware of fees associated with paying Uncle Sam this way, and watch out for high credit card APRs if you can’t erase your balance in a timely manner.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Tax time can be stressful, particularly if you don’t have the money to pay what you owe.

While a credit card can be a convenient way to cover the bill, make sure you understand all the ways it will cost you.

Tax laws forbid Uncle Sam from directly accepting credit cards, so the federal government farms out that option to three third-party services.

Link2Gov Corp. accepts card payments through Pay1040.com; ACI Payments Inc. collects card payments through OfficialPayments.com; and WorldPay accepts card payments through PayUSAtax.com.

All charge convenience fees. The convenience fee for paying 2019 taxes with credit cards ranges from 1.87% to 1.99% of the payment, depending on the third-party service used.

You can also pay by credit card if you use tax preparation software that has e-file and e-pay built in, such as TurboTax, though there would still be a convenience fee charged by the payment processor. You can also pay by digital wallet; regular debit or credit card fees would apply.

Let’s look at a hypothetical $4,000 tax bill and what it would cost to pay by credit card.

See related: Best credit cards to pay your taxes

What does it cost to pay your taxes with a credit card?

Payoff methodCharge to pay by credit cardPayoff detailsTotal cost
12-month payoff, 16% interest$79.60 (1.99% convenience fee)12 equal payments of $370$4,441.60
($4,079.60 financed, $362 in interest)
Minimum payments, 16% interest$79.60 (1.99% convenience fee)248 monthly minimum payments, starting at $95.20$8,979.09
($4,079.60 financed, $4899.49 in interest)
Balance transfer, 0% interest for 12 months$199.60 (1.99% convenience fee, then a 3% balance transfer fee)12 equal payments of $350.20$4,202
(no interest)
Assumptions: Minimum payment of 1% of balance plus interest and an APR of 16%, and no further charges made on the card. Use CreditCards.com’s credit card calculators to figure your own example. The IRS website has additional details on paying by credit card and e-filing.

Balance transfer card buys you time, saves money

When you shift your debt from Uncle Sam to your credit card issuer, you pay interest on whatever balance you carry. If you pay only minimum payments, this year’s tax bill could haunt you for many more.

You could open a balance transfer credit card and transfer your tax payment to it. Balance transfer offers to people with good credit typically include an interest-free period of a few months to more than a year.

A year-long promotional credit card rate of 0% would likely make for a pretty sweet deal.

“But you’d better make a plan to pay that credit card off within the year, so it really is 0%,” warns Dawn W. Brolin, CEO of Powerful Accounting, a CPA firm based in Windham, Connecticut.

Also, keep in mind that if you are late on a payment, your interest rate could skyrocket.

To transfer a balance, you’ll typically pay a fee of about 3% to 5% of the balance transferred, and people with less-than-perfect credit may not qualify for a transfer covering the full amount of the tax bill. Additionally, many credit card issuers have tightened their standards for balance transfer offers as the economy struggles from the COVID-19 pandemic.

See related: What you need to know about balance transfer checks

Cash advance convenience check is an expensive option

Credit card holders also can pay their tax bill with a cash advance convenience check, but this option comes with a high price. Here’s why: Cash advance convenience checks have steep transaction fees, high interest rates and no grace period, making them an expensive choice.

“People always need to read the fine print,” says Mark Foster, director of education for Credit Counseling of Arkansas. “Cash advances typically have a higher interest rate than other purchases and they don’t typically have a grace period.”

IRS installment agreement spreads out payments

Before whipping out the plastic, compare the costs of paying by credit card with the costs of an installment agreement with the IRS.

That’s what Dana Andrews of Wheatfield, New York, did when he had a $15,000 tax bill. After weighing whether to put the tax bill on his credit card versus working with the IRS, Andrews decided to go with the installment plan.

With an installment plan, taxpayers typically get six years to pay off a debt. This means your minimum monthly payment would be the total amount owed divided by 72.

Of course, you will pay a fee to set up the installment plan ($149 or $225, depending on whether you apply online or by mail, phone or at an IRS office), interest and late penalties. The setup fee drops to $31 or $107 if you have the payments deducted from your bank account. Taxpayers whose income meets the Department of Health and Human Services’ poverty guidelines may be able to qualify for having the setup fee waived.

The costs don’t stop there. Even if you have an installment plan, you still must pay a late penalty of 0.25% per month until the debt is paid in full.

Interest, compounded daily, must also be factored in. The interest rate, which equals the federal short-term rate plus 3%, is set quarterly.

If you select an installment agreement, know that you won’t receive future tax refunds until your debt is paid. Instead, the refunds will be applied to any remaining debt.

If you think you can pay off the amount you owe in 120 days or less, you can apply for a short-term payment plan. There is no setup fee whether you apply online or via phone, mail or in-person. However, you will have to pay any penalties that have accrued, as well as interest until you’ve paid off the entire balance.

Credit card vs. IRS installment agreement

Some – including the IRS – tout using credit cards to make tax payments as a way to earn rewards, such as frequent flyer miles or cash back. However, card issuers typically award rewards worth 1% of your spending, while the third-party convenience fee could be nearly 2%.

“Taxpayers would likely be paying more to the third party than they would get back for redeeming points,” says Michael Rozbruch, founder of Michael Rozbruch’s Tax and Business Solutions Academy.

Another thing to take into consideration: An IRS installment agreement won’t affect your credit, while paying by credit card would increase your debt load. The latter could increase your credit utilization ratio, which lowers your score, leaving you with increased interest rates and a reduced credit line, Foster says.

See related: What is a good credit utilization ratio?

Bottom line

Ideally, you should have enough money withheld from your earnings throughout the year so you don’t have to scramble for cash on tax day, says Brolin. But if your savings won’t cover the taxes you owe, you have to determine which form of payment will cost you the least.

Regardless of what option you choose, plan to have more money set aside to ensure that you don’t fall short next year.

“If you don’t make some adjustments, whatever happened this year will probably happen again,” Foster says.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Balance Transfers

Balance transfer checks: All you need to know

If you want to transfer a balance from a high-interest credit card to another card with no or lower interest, a balance transfer check can help. But balance transfer checks come with both benefits and potential drawbacks. Here’s how to decide if a balance transfer check is right for you.

See more stories
Credit Card Rate Report Updated: September 16th, 2020
Business
13.91%
Airline
15.48%
Cash Back
15.94%
Reward
15.78%
Student
16.12%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.