You may not know this, but you are able to pay your taxes by using a credit card! You may ask yourself, “Why would I want to pay my taxes with a credit card?” First of all, you might be able to meet some spending requirements required by the signup promotions you have with your new credit cards.
This is a great way to earn a little extra cash. However, there are some disadvantages associated with paying your taxes with a credit card. This article will show you both of the advantages and disadvantages when paying your taxes with a credit card. You can visit the Official IRS Website for more information.
Disclaimer: We are not tax specialists; therefore, you should consult a tax professional for complete information.
How Does it Work?
Starting January 1st, 1999, we are able to pay our taxes through the Tax Payer Relief Act. However, the IRS is not authorized to process the payments directly. Instead, they have to go through a third-party company providers like Pay1040, PayUSAtax & Official Payment to process the payments.
Going through a third-party company almost always results in additional fees for you, which it does have. However, some of these fees are low enough to earn you a net profit. These fees range from 1.87% – 2.25%.
Below, you will find a table with the different companies that process credit card payments for the IRS and the fees associated with each.
|Debit Cards||Credit Cards||Digital Wallet|
|Pay1040.com||$2.58 flat fee for consumer/personal cards and 1.99% for all other debit cards (minimum $2.58)||1.99% (minimum $2.58)||See debit/credit card fees|
|PayUSAtax.com||$2.55 flat fee||1.96% (minimum fee $2.69)||See debit/credit card fees|
|ACI Payments (formerly OfficialPayments.com/Fed)||$2.00 flat fee ($3.95 for payments over $1,000)||1.99% (minimum $2.50). AmEx over $100,000 is 1.9%||See debit/credit card fees|
You can see that there is only a flat fee when you pay with a debit card. You might want to consider using a debit card that offers cash back rewards like the PayPal Business Debit MasterCard®.This card allows you earn 1% cash back on eligible purchases, so you could possibly use this debit card for paying taxes.
Please note that there are going to be higher fees if you use any tax preparation software, you can compare those fees here.
With Plastiq, the standard fee is 2.5% for Visa, Mastercard, Discover or Amex. You can also make an unlimited number of tax payments via Plastiq bill pay service, but do note that you will incur slightly higher fees. Plastiq usually charges 2.5% to pay bills (including taxes) via credit card, but they occasionally offer lower fees via short term promotions.You can also check our how to use Plastiq’s tax payment screen.
Paying Your Taxes with a Credit Card
As shown on the table, you can see that Pay1040 is the lowest fee for credit card processing at 1.87%. Usually, this would mean you want a credit card that offers above 1.87% cash back in order to remain even. Not only do you want to remain even, but by paying your taxes through a credit card, you’ll be able to earn the sign-up promotional offers.
Below, we’ve listed the top five reasons why you should pay your federal taxes with a credit card or gift card. You can also find a couple of credit cards with great promotions that are satisfied after a spending requirement is reached. To find our full list of offers, visit Credit Card Bonuses page.
There’s quite a number of credit cards that earn cash rewards greater than 1.87%. The best of the best are two cards that earn 3% cashback in the first year of your card membership: Discover it Miles and Alliant Cashback Visa® Signature Card!
Since you will be earning 3% cashback on both is the base tax payment and processing fees with these cards, your profit should be around 1.186% of your payment.
If you recently sign up for new credit cards, there’s a chance you need to meet the spending requirements to earn the signup bonuses. Paying taxes is a cheap and easy way to accomplish that. See more about this in the section below.
There are several cards that offer up to 1.5 miles per dollar for spend, so in this case, a 1.87% tax payment fee means that you can essentially buy miles for 1.22¢ per dollar. What’s even better is that some card can earn 2 miles per dollar like the Amex Blue Business Plus credit card and the Citi Double Cash card. With these 2X everywhere cards you can essentially buy miles for 0.92 cents per dollar.
Cards that offer 2X airlines miles per dollar
With the Blue Business® Plus Credit Card from American Express, you'll get rewarded for business as usual. Earn 15,000 Membership Rewards® points after you spend $3,000 in eligible purchases on the Card within your first 3 months of Card Membership.
Earn 2X Membership Rewards® points on everyday business purchases such as office supplies or client dinners. You'll earn 2X applies to the first $50,000 in purchases per year, 1 point per dollar thereafter. You’ve got the power to use your Card beyond its credit limit* with Expanded Buying Power.
More buying power allows for your business means more opportunities to earn points. That’s everyday business with the Blue Business Plus Card. *The amount you can spend above your credit limit is not unlimited. It adjusts with your use of the Card, your payment history, credit record, financial resources known to American Express, and other factors.
There card comes with no annual fee (See Rates & Fees).
Cards that offer 1.5X airlines miles per dollar
The Chase Freedom Unlimited Card offers a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening. Earn unlimited 1.5% cash back on all purchases.
In addition, you can earn:
• Earn 5% cash back on grocery store purchases (not including Target or Walmart purchases) on up to $12,000 spent in the first year.
• Earn unlimited 1.5% cash back on all other purchases.
• Earn 5% on Chase travel purchased through Ultimate Rewards, 3% on dining and drugstores, and 1.5% on all other purchases.
There is no minimum to redeem for cash back & your cash back rewards do not expire as long as your account is open.
This card comes with no annual fee and you'll get a free credit score that is updated weekly with Credit JourneySM.
The Ink Business Unlimited Credit Card offers $750 bonus cash back after you spend $7,500 on purchases in the first 3 months from account opening.
You'll earn an unlimited 1.5% cash back on every purchase made for your business and you'll receive employee cards at no additional cost.
This card carries no annual fee.
The The Business Platinum Card® from American Express has a welcome offer of 120,000 Membership Rewards points after you spend $15,000 on eligible purchases with your Card within the first 3 months of Card Membership.
Plus, 0% Intro APR for 12 months from the date of the account opening on purchases eligible for Pay Over Time. After that, your APR will be 14.24% to 22.24% based on your credit worthiness and other factors as determined at the time of account opening.
• 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com. In addition, you'll get 50% more Membership Rewards® points.
• 1.5X Membership Rewards points on eligible purchases in key business categories, as well as on purchases of $5,000 or more everywhere else. Cap applies.
Get $200 Airline Fee Credit: Get up to $200 in statement credits per calendar year toward baggage fees and more at one qualifying airline.
This card does come with a $595 annual fee ($695 if application is received on or after 01/13/2022). (See Rates & Fees)
The Capital One Venture Rewards Credit Card offers a one-time bonus of 60,000 miles once you spend $3,000 on purchases within 3 months from account opening, equal to $600 in travel.
You're able to earn 2X miles on every purchase, every day.
This card does come with a $95 annual fee. Enjoy no foreign transaction fees and receive up to $100 application fee credit for Global Entry or TSA Pre?®.
The Capital One Spark Miles for Business offers a one-time bonus of 50,000 miles - equal to $500 in travel - once you spend $4,500 on purchases within the first 3 months from account opening.
Your miles won't expire for the life of the account, and there are no categories to limit where or what you buy and you can earn 2 miles per $1 on every purchase. And 5X miles on hotel and rental car bookings through Capital One TravelSM using a Spark Miles card
There is an annual fee of $95, however, there is a $0 intro annual fee for the first year. Enjoy no foreign transaction fees and fly on any airline, anytime, with no blackout dates or seat restrictions.
Many credit cards offer bonuses like elite status, free nights, companion pass, etc. for meeting the high spend thresholds. You can find the full list here.
Visa and MasterCard gift cards are considered as debit cards. They qualify for low flat fees for debit tax payments, see table above, it depends on the tax processor you use. So your cost to liquidate $500 gift cards will be approximately half a percent.
If you use $500 Visa/MasterCard gift cards, then you can pay the following amounts:
- PayUSAtax.com ($2.58 fee): Make a $497.42 payment.
- Pay1040.com ($2.59 fee): Make a $497.41 payment.
- OfficialPayments.com ($2 fee): Make a $498 payment.
The problem here is the the IRS imposed two payments per processor limit, so you can liquidate no more than 6 gift cards per type of tax payment.
Samsung Pay & Google Pay
A few tax payment websites support mobile wallet payments like Samsung Pay or Google Pay. If you use the U.S. Bank Altitude™ Reserve Visa Infinite® Card, it earns 3X for mobile wallet payments, so this should be a good option!
But some people have reported that Samsung/ Google Pay are only supported through Visa Checkout and this won’t trigger the Altitude’s 3X rewards, so make check to make sure if it’s valid before you pay!
American Express Checkout
Because of how strict American Express is about not counting manufactured spending towards new credit card welcome bonuses, tax payments will be a great alternative for you to spend on.
A great perk about Amex Express Checkout is that you can use it to make payments event if you don’t have your card with you. Say if you recently signed up for a new Amex card and you haven’t received the physical card, you should be still able to pay through Amex Express Checkout as long you add the new card to your online account.
Claim the Fees as a Deductible
You might be able to avoid the processing fees when you use your credit card to pay for your taxes. The requirement is that the tax that you are paying has to be a business tax. If it is, then you are able to treat the fee as a business expense. By doing this, you’ll be able to save more than expected.
On the IRS page you’ll notice the following:
The fees vary by service provider and may be tax deductible
The IRS introduced a new law, in 2009, that allows people to deduct expenses when they file electronically. View the full statement from the official IRS website here.
Make sure to be aware of:
- Convenience fees associated with payment of federal tax can be included as a miscellaneous itemized deduction
- Only those miscellaneous expenses that exceed 2% of the taxpayer’s adjusted gross income can be deducted
Make sure that you checkout the IRS’ official website to see what they consider as a miscellaneous expense!
It’s more clear for business taxes, the IRS states that:
For business tax types, the fee is a deductible business expense.
Meeting Minimum Spending Requirements
While manufactured spending methods continue to dry up, more people are preferring to pay fees to meet the minimum spending requirements. Why you ask? They usually have large sign-up bonuses relative to the minimum spend requirements.
The IRS allows you to split payments up, but it depends on how many times you can do it on what sort of tax you’re paying. You can check out the full table here.
However, if you use Plastiq, there is not limit on the amount of payments you can make You will be paying with a card, but each payment will be sent to the IRS via mailed check. And the limits given by the IRS are only for card payments, not check payments.
Remember To Be Careful
This article mainly focused on being able to pay your taxes in full. If you don’t, you will incur high interest rate charges on your payment if you don’t pay in full. Also, you want to be sure that you have enough available credit on your credit cards to make the payments that you need. If you don’t, you will also be charged extra money!
Frequently Asked Questions
– Do any credit cards code any of these sites in a bonus category?
Your payment is going to be broken down into two different payments:
- Your actual tax payment will show as “United States Treasury Tax Payment”
- The convenience fee charged will show as ” Tax Payment Convenience Fee”
So far, no credit cards will earn a category bonus on this purchase, but it is still possible that they do.
– Can I use Visa, Mastercard, or an American Express gift card to make a payment?
Official Payments allows you to use more than two debit cards when paying over the phone. It’s important to note that you will be paying a $2.25 fee per card.
But the best option for multiple gift cards is to use Plastiq since it allows gift cards to be used at their 2-2.5% fee. So if you have ten $500 gift cards, you can make ten separate payments of $490 each and a heck will be sent to the IRS for each one.
– Will I be charged a cash advance fee?
No major credit card issuers charge a cash advance fee. This is confirmed by the websites of each of the payment processors:
Paying your taxes with a credit card allows for some potential benefits. If you are looking to meet the minimum spending requirements benefit from promotional offers, then this strategy might just be for you!
Typically, the cash back rate from credit cards is about 2%, and the lowest processing fee for using a credit card is 1.87%. In the end, you aren’t earning enough to make it extremely profitable, however, the promotional credit card offers make it worth it.
If you liked this article, go ahead and check out our exclusive list of Best Credit Card Promotions.