Can You Pay Taxes With A Credit Card?

Whether you’re looking for a way to cover an unexpectedly high tax bill or earn credit card rewards, you might be wondering whether there’s any benefit to paying taxes on credit. Certainly, it’s tempting to think about the points, miles or cash back you can earn when you use your credit card to pay your tax bill.

Unfortunately, putting taxes on a credit card is often a losing game. There are few scenarios where you can actually make it work, but it’s not impossible.

Can you pay taxes with an IRS credit card payment?

Yes, it’s possible to pay taxes with a credit card, but except for a few cases, it isn’t recommended. The risk of getting into credit card debt is too high, and the rewards you might earn from putting your taxes on credit are too low. And if you can’t pay back the money before interest kicks in, that tax bill could cost much more than what the IRS required of you in the first place.

Some people wonder if paying taxes with a credit card could help them earn credit card sign-up bonuses or other top credit card rewards. The good news is that it is possible to earn credit card rewards for your tax payment. The bad news is that as tempting as it is to go for that cash back, points or miles, the fees associated with putting your taxes on credit could cancel out many of the rewards you earn.

Here are the fees and accepted payments from the two official payment processors:

Putting your tax payment on a credit card could cost you extra money every month in the form of interest charges — unless, of course, you choose a credit card with an introductory 0 percent interest rate — and paying your taxes on credit could increase your credit utilization ratio to the point that it lowers your credit score if you don’t pay it off expeditiously.

Benefits of paying taxes with a credit card

Putting your tax payment on a 0 percent intro APR credit card is a possible solution, but it depends on the size of your bill. If you believe you can pay off that card before the 0 percent intro rate goes away, then you could come out ahead. 

To ensure you have enough time to pay off your tax bill, consider signing up for credit cards that offer a 0 percent intro APR from account opening on purchases. Options include the Wells Fargo Reflect® Card, which offers a generous 21 months to pay off purchases. The Capital One VentureOne Rewards Credit Card also offers a 0 percent rate for the first 15 months. And if you can earn a welcome bonus on a new card in the same go, that’s a nice extra perk.

If a 0 percent APR card isn’t an option for you, consider applying for an IRS Payment Plan. Options include a short-term payment plan (paying your debt in 180 days or less) or a long-term payment plan (an installment agreement paid monthly), depending on your tax situation. No matter what plan you choose, accrued penalties and interest will continue until the balance is paid in full.

Long-term payment plans are available for those who owe $50,000 or less in combined tax, penalties and interest and who have filed all required returns, according to the IRS. Short-term payment plans are offered to those who owe less than $100,000 in combined tax, penalties and interest. Long-term payment plans require a setup fee (may be waived for low-income applicants in certain circumstances), and you’ll pay a fee when making your monthly payment by credit card.

Downsides of paying taxes with a credit card

“As a small business owner, I typically have a pretty large tax bill,” says Matthew Robbs of Smart Saving Advice, a website that helps people make smart financial decisions. “I have looked into paying taxes on my credit card, but many people don’t realize that there is a 2 percent fee to do so. If you only get 1 percent in cash back or miles on your tax payment, you are actually losing money by paying your taxes via a credit card.”

In addition to losing money on fees, you also run the risk of turning your outstanding tax balance into an outstanding credit card balance.

“The only way you are able to actually make money by paying your taxes with a credit card is if you get more than 2 percent cash back,” says Robbs. While many of today’s best cash back cards, such as the Capital One Savor Cash Rewards Credit Card or Chase Freedom Unlimited® card, offer more than 2 percent cash back on popular spending categories like groceries, dining or travel, tax payments rarely qualify for more than the baseline rewards rate — 1 percent or 1.5 percent, in many cases.

Even if you have a card that offers 2 percent cash back, it costs 1.75 or 1.85 percent of your total tax payment to use official IRS credit card payment processors Pay1040 or ACI Payments, Inc. At best, you’ll just about break even, and the value of your credit card rewards could be lower than the money you pay in fees.

The bottom line

Depending on the size of the bill and your credit limit, paying taxes with a credit card could hurt your credit utilization ratio, which is 30 percent of what’s used to calculate your credit score. The only factor higher is payment history, at 35 percent.

But if you’re still thinking about putting your taxes on your credit card to earn cash back, points or miles, make sure any rewards you earn are higher in value than the fees associated with your card payment. Otherwise, you’ll lose money overall — and that’s before any interest charges you may incur if you don’t pay off your tax payment in full.

If you can’t afford to pay your taxes, consider applying for an IRS Payment Plan instead of putting your payment on a credit card. If you want more information about how to pay your taxes or what to do if you can’t pay your tax bill, we’ve got a helpful tax guide to get you started.