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How To Pay Your Taxes With Your Credit Card – You’ll Be Surprised At How Easy It Is

image- Jan 19, 2021 Credit Card Info0 comments

Tax season is here! As Benjamin Franklin so profoundly said: “Only two things are certain. Death…and taxes. Interestingly enough, both are unexciting…

In this post, we’ll discuss paying taxes with credit cards and debit cards.

Ready? Let’s go!

Paying taxes with my credit card

When is it worth it to pay my taxes with my credit card?

When you pay taxes with a credit card, there will be a fee ranging from 1.96% to 1.99%. In order for it to be worthwhile for you to pay with a credit card, your total rewards will need to equal MORE than that 1.96% fee.

Let’s illustrate this with an example: Let’s say you need to pay $10,000 in taxes.

$10,000 x 1.96% = $196.

You’ll be paying an additional fee of $196.00. That means that the total will be $10,196

This is doable with a card like the Amex Blue Business Plus card that allows you to earn 2 membership reward points for every dollar you spend. If you value the membership rewards points at 1.5 cents per dollar, then you end up with a 3% value which totals $300 with the example we used ($10,000 tax payment).

Discover also has a card- Discover It Miles– that earns 3% cash back for the first year.

When else is it worth it to pay my taxes with my credit card?

There are many other pros to paying your taxes with your credit card. Here are some of them:

  1. To reach your “minimum spent” in order to access the welcome offer.

For example, you can earn 100,000 points after spending $15,000 on the Chase Ink Preferred Card.

2. To get your taxes interest fee for 0% APR for up to 20 months, on a 0% APR card.

3. To reach your “minimum spent” in order to qualify for a free night in a hotel, or for elite status.

For example, with the Hilton Honors Surpass card, you can earn a free night after you spend $15,000 within a calendar year. You can also get a complimentary upgrade to Hilton Diamond Status after spending $40,000 on the card, within a year.

4. You get to use your $30 credit from Paypal on the Amex Platinum card.

5. You get $25 back for every $500 you spend, on many Amex small business cards.

Paying taxes with the Discover debit card

Another way that it might be worth it to pay your taxes and earn rewards, would be with the Discover debit card. With the Discover debit card, you earn 1% cashback on up to $3,000 spent each month. The fee for paying taxes with a debit card can be as low as $2.55 – which is a flat fee (no matter how much taxes you pay). 1% cashback with Discover should total a nicer return than the fee paid.

How to pay taxes with a debit or credit card

The IRS lists on their website the three third-party companies that you can pay your taxes to, using a credit card.

PayUSATax

  • Fee to pay with a credit card: 1.96%
  • Fee to pay with a debit card: $2.55 (flat fee)
  • Accepts: Visa, MasterCard, Discover, Amex, Star, Pulse, Accel, PayPal

Pay1040

  • Fee to pay with a credit card: 1.99%
  • Fee to pay with a debit card: $2.58 (flat fee)
  • Accepts: Visa, MasterCard, Discover, Amex, Star, Pulse, NYCE

ACI Payments

  • Fee to pay with a credit card: 1.99%
  • Fee to pay with a debit card: $2.00- flat fee for transactions up to $1,000, and $3.95- flat fee for transactions above $1,000.
  • Accepts: Visa, MasterCard, Discover, Amex, Star, Pulse, NYCE, (digital wallets for Visa MasterCard and Amex) Paywithcash, Paynearme

Are the payment processing fees tax deductible?

Payment processing fees are tax-deductible as a business expense for your business tax returns, but they are not deductible on your personal tax returns.

Overpaying your tax bill to spend more on your card

If you overpay the IRS, then the IRS will issue a refund to you for the amount you overpaid. That means that you can max out- charge even more than you owe for taxes- to be able to achieve spending more on your credit card. But, as with everything in life, it’s never good to overdo it.

Only two credit card payments per person

If you want to split your tax bill with multiple credit cards, you can do so. In general, you can only pay the IRS twice, using a credit card for each tax type. This limit is only enforced per tax period so if you pay taxes each quarter, then you can make two payments by credit card each quarter. You can check out a chart with more details on the IRS website found here.

As per the Frequent Miler, these limits are only enforced per credit card processor so if you have already paid two payments with, lets say, Pay1040 , you can do another two with PayUSATax, and another two with ACI Payments etc.

If you’re looking for a great signup bonus to make paying taxes a little more rewarding, then check out our comprehensive list of all great credit card sign-up bonuses available now, here. You can also check out a comprehensive list of 0% APR offers available here.

What are some cons for paying taxes with a credit card?

  • Processing fees- if your processing fee (the percentage or the flat fee) is more than your rewards, then it may not be worth it to pay with your card.
  • Interest charges- if you don’t have a 0% APR card, then it’s only worthwhile to pay your taxes with your credit card if you pay the full balance amount. Otherwise you risk incurring high-interest charges.
  • High credit utilization- paying taxes with your card can lead to a temporary credit drop, if you use too much of your utilization rate.

You can calculate your utilization rate by dividing your credit card balance by your total available credit.

For example: $4,000 = balance. $10,000 = available credit.

Utilization rate = 40%. Adding a $2,000 (fill in with your amount) tax payment will lead to a 60% utilization rate. That is way too high! Your utilization rate shouldn’t be more than 9%.

Keeping all that in mind, make sure to make the decision based on if it’s best for YOU!
Happy tax season!

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Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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