Pay Taxes With a Credit Card

Taxes have to be paid, no matter what, or else there will be severe consequences that you surely don’t want to experience. There are different ways to pay your taxes. You can make a direct pay, electronic funds withdrawal, pay with cash, make an installment agreement, or pay with a debit or a credit card. Should you pay taxes with a credit card, though?

What Are Taxes?

Taxes are financial charges or fees that are levied on people or corporations and enforced by the governmental organization. Taxes are necessary in order to cover different public expenditures, as well as government spending. They are a must, and everyone who has to pay taxes should do so, or else they will be penalized accordingly. Tax evasion or resistance is punishable by law.

Taxes are usually applied on some type of sums received by the taxpayer. That being said, the tax can apply on a salary, on dividends received as extra income, on capital gains from investment application, payment for goods and services, and so on.

What Are the Different Ways You Can Pay Your Taxes?

There’s more than one way to pay taxes. The versatility of paying taxes is what makes it so easy to do it. You can go with the method you prefer the most or the one that is readily available for you.

Paying by Check

One of the common ways of paying taxes is by check. All you have to do is write a check and put it in the mail. It requires more time, but it’s easy and more convenient for people who don’t want to bother with technology, or with IRS fees.

The best thing about it is that it’s the least expensive way for you to pay your taxes. You’ll just have to pay for the envelope and postage, as well as the cost of a check. No fee applies with this method.

When you mail a check, the IRS will make sure to credit the payment on the date postmarked on the envelope. Even if it takes a while for the check to reach the IRS, this will not affect the date you paid. Also, this will allow you one or two extra days before the money is debited from your account.

At the same time, as drawbacks, there is no way to know how many days it takes to get there, and the check might also get lost in the mail. Not to mention that there will be no payment receipt until the check clears.

Paying by Debit Card

Another very accessible option is paying with a debit card. It can be convenient if you have one, but there is also a flat fee that you’ll have to pay. The fee is between $2 and $3.95. The fee amount usually depends on which one of the three payment processors you settle for. It also depends on whether your payment exceeds $1,000 in the case of one company.

This is the least expensive option to pay, as the fee will stay below $4. On top of that, you will instantly get a receipt for your payment, and there is no likelihood of the check being lost in the mail.

Nevertheless, there are also some disadvantages. You will get no rewards for this type of transaction, no matter what debit card you have. One of the very few remaining ones is the Delta SkyMiles card offered by SunTrust. Still, even with this card, it only offers rewards for transactions that are either based on a signature or PIN. This would not be available for online tax payments.

Paying by Credit Card

Lastly, paying by credit card is another option. There are some fees that apply, and they are calculated based on the amount you pay. These fees range from 1.96% to 1.99%.

Back in the day, the fees were charged differently depending on what network the card belonged to but nowadays things have changed. Over the years, the processors started charging the same fee for all cards, no matter what payment network you use.

Furthermore, all three authorized payment processors accept payments using digital wallet services now, apart from entering your credit card number. You can use Visa Checkout and American Express Checkout. PayUSAtax.com and Pay1040.com accept MasterPass, while the former also accepts Android Pay, Samsung Pay, and PayPal.

Benefits of Paying Your Taxes on a Credit Card

There are some benefits you can have if you pay your taxes on a credit card, such as:

Rewards Points

By paying with a credit card, you can earn some nice rewards for the tax payments. Even though some years ago the fees used to be higher than the value of the rewards, both credit cards, and loyalty programs worked on the value of the rewards and increased it. At the same time, convenience fees decreased, making everything easier to handle. The charge will not be processed as a cash advance either. It will be charged as a purchase instead and you’ll earn rewards.

Meeting the Bonus Threshold

In some cases, there will be high minimum spending requirements in order to earn a welcome bonus with some travel rewards cards. For instance, the Amex Business Platinum offers 85,000 membership rewards points if you spend $15,000 on eligible purchases during the first three months after opening the account. Meanwhile, the Ink Business Preferred Credit Card has an offer that allows applicants to get 100,000 Chase Ultimate Rewards points after spending $15,000 on purchases during the first three months after opening the account.

Meeting the Spending Threshold

Once you reach a certain spending threshold, some credit cards offer benefits based on the cardmember anniversary or the calendar year. All you have to do is spend a lot of money paying large tax amounts.

Splitting Your Payment

In case of large bills, you have the opportunity to split your payment among multiple cards. This way, you will not be forced to put all the amount on a single credit card. All tax payment processors let taxpayers make two separate payments per tax period. You can even use multiple payment processors for the same tax period, which is great.

Drawbacks of Paying Your Taxes on a Credit Card

There are indeed some advantages, but we cannot ignore the disadvantages either.

If you use a credit card to pay your taxes, despite all the rewards you can get, there is a pretty high interest rate on these rewards. So, if you will be unable to pay the statement balance in full after using a credit card to pay taxes, then you should use another method.

If possible, talk to your tax advisor or accountant and see your options. Perhaps you will have the chance to make a payment plan with the IRS with lower interest rates compared to the interest rate on most credits.

Read More

• Why Was No Federal Income Tax Withheld From My Paycheck?
• Why Do I Owe Taxes?
• Why Do I Owe State Taxes?
• Are You Exempt from Federal Withholding?
• How to File Taxes With No Income
• Can You File Taxes Without a W2?
• H1B Taxes: Everything You Need to Know

Conclusion

Paying your taxes with a credit card is an available option. If you do it right, you can even earn some rewards, which make this method quite advantageous. However, there are some bad things too, such as the high interest rate on the rewards. Look into all these details and decide for yourself if using a credit card is what you should do or not.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

See author's posts