Sadly, there’s no avoiding paying taxes to the IRS — whether that’s once a year or multiple times for those who are self-employed. However, what you do have agency over is how you pay. One of the few ways you can pay taxes is with a credit card.
Whether you want to pay the IRS with a credit card so that you can earn rewards or have a bit of financial breathing room, it’s important to be aware of the implications of using such a payment method. Read on to learn more about how to pay taxes with a credit card.
Can You Pay Taxes With a Credit Card?
Yes, you can.
More specifically, you can pay your federal taxes with a credit card and in some cases, you may even be able to pay your state taxes with one as well. The IRS offers different third-party payment processors that accept credit card payments for taxes. To find out which ones are approved by the IRS, head to their website .
Keep in mind that if you pay the IRS with a credit card, this type of transaction isn’t free, given how credit cards work. Whichever third-party payment service provider you choose, you’ll be charged additional processing fees for the convenience of using your credit card to pay taxes. For example, all of the third-party options charge a percentage of the amount you’ll be paying in taxes, but there’s also a minimum flat fee you’ll owe.
In addition, there may be limitations as to how many times you can use your credit card for IRS payments. For instance, if you wanted to pay your personal income taxes, you can only do so twice per year for the current tax year due. However, if you worked out a monthly payment plan with the IRS, you can pay with a credit card up to two times per month.
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Should You Pay Taxes With a Credit Card?
That depends on what your goals are.
Here are some common reasons why taxpayers choose to pay their taxes with a credit card:
• Earn rewards points, cash back, or miles: Many consumers love to earn perks offered by their credit card issuers and see it as a major benefit of what a credit card is. Even with the additional fees associated with paying taxes with a credit card, you may feel like the rewards more than offset what you’ll pay. In other words, if the value of the rewards is much higher than the processing service fees, it might be worth considering. For instance, you may be able to earn 4,000 rewards points from your tax payment, which equates to $100 toward a flight or hotel room. If you owe $3,000 in federal taxes and the third-party payment service company charges you 1.96%, you’re effectively paying $58.80 in fees to earn $100 in rewards. Whether that’s worth it is up to you.
• Earn a major rewards bonus: If you signed up for a new rewards credit card and need to meet a minimum spending threshold to earn a huge bonus, it might be worth considering paying your taxes with that credit card. For instance, if you signed up for a credit card offering 50,000 bonus miles — an equivalent to $1,000 worth of travel — paying a $4,000 tax bill with a payment service charge of 1.96% equates to $78.40 in fees. Assuming that meets your minimum spending threshold, the value you receive is pretty high. Just make sure you can make more than your credit card minimum payment, and ideally your full balance, to avoid interest accruing.
• Gain the ability to spread out your payment: Paying taxes with a credit card might be worth considering if you’re looking for a low-cost way to spread out your tax payments. If you have excellent credit, you may qualify for a credit card offering a 0% introductory APR, meaning you’ll have time until the offer runs out to pay off your taxes interest-free. Sure, you’re paying card processing service fees, but the amount could be worth it to spread out your payments. However, many credit card companies have terms and conditions that stipulate how you can remain in good standing for the introductory offer for the APR on a credit card — make sure you’re following them, or you could be paying a high amount in interest.
Recommended: What is APR on a Credit Card?
How Do You Pay Taxes With a Credit Card?
If you’ve decided you want to use your credit card for tax payments, here’s how you do it:
1. Decide on which credit card to use: Consider your reasons for using a credit card — is it to earn rewards, meet a minimum spending threshold, or spread out your payments interest-free? Whatever it is, make sure to choose a card that meets your goals. If you want to open a credit card, then you’ll want to make sure you receive the card in time to pay the IRS before the tax filing deadline.
2. Determine the amount you want to pay: Whatever the amount is, ensure it’s well within your credit card limit. You can spread your payments over multiple credit cards, but keep in mind the transaction limits that the IRS imposes for certain payments.
3. Choose a third-party payment processor: The IRS website currently lists three approved payment service providers that you can use. Compare which one offers the best features and lowest fees.
4. Make your payment: Once you’ve selected which payment service provider you want to go with, head to their website and follow the instructions. You may be asked to provide information such as the credit card expiration date and CVV number on a credit card. Double check that you’re making the right type of payment before pressing submit.
Pros and Cons of Paying Taxes With a Credit Card
There are advantages and disadvantages to paying the IRS with a credit card. Here are the pros and cons to consider before you do:
|Pros of Paying Taxes With a Credit Card||Cons of Paying Taxes With a Credit Card|
|Earn cash back and credit card rewards||Third-party payment processors charge fees|
|Meet spending thresholds for bonus rewards earnings||Rewards earnings may not offset fees paid|
|Use a convenient form of payment||Potentially pay high credit card interest rates if you carry a balance or the introductory APR period ends before your balance is paid off|
|Spread out payments interest-free if using a card with 0% introductory APR||IRS payment plan interest rates may be lower than what’s offered by credit cards|
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Indeed, you can pay taxes with a credit card. Paying taxes using a rewards credit card is a great way to earn perks, helping you maximize your spending. However, there are downsides to consider as well, such as the third-party processing fees and the potential to run into high credit card interest if you don’t have a good APR for a credit card.
If you do want to pay taxes with a credit card, it’s important to find the right card to do so. The SoFi Credit Card offers up to 2% unlimited cash back when you redeem it to save, invest, or pay down an eligible SoFi loan. Plus, you can get your APR lowered by 1% if you make 12 monthly on-time payments of at least the minimum payment.
What does it cost to pay taxes with a credit card?
Third-party payment processors charge a service fee to pay your taxes with a credit card. In many cases, it’s typically a percentage of your payment amount, with a minimum flat fee charged.
Does paying taxes with your credit card earn you rewards?
Paying taxes can earn you rewards depending on the type of credit card you use. Many rewards credit cards offer cash back, miles, or travel points on qualifying purchases. Before doing so, it might be helpful to determine whether the value of the rewards earned outweigh the fees you’ll pay.
Is it better to pay taxes with a credit card or debit card?
Both methods of paying your taxes can be a great choice, depending on your financial situation. If you’re not interested in earning rewards or spreading out your payments and have the cash on hand, you can pay with a debit card. Some may prefer to pay with a credit card because they feel it’s a more secure way to make payments.
You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.
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Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.
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