Yes, you can pay federal taxes on a credit card. The IRS gave consumers the right to pay with a credit card under the Taxpayer Relief Act of 1997. Most states with a state income tax will allow you to pay with a credit card, too.
But should you? Here are a few things to consider first:
Factors to Consider When Paying Taxes with a Credit Card
You’ll Pay Extra
The IRS does not accept credit card payments directly. Instead, they’ve licensed several payment processors to accept credit card payments on their behalf.
These credit card processors charge an additional fee on top of your tax bill. The fee to pay with a credit card is usually around 2% with a minimum fee, depending on the payment processor you choose. The table below from the IRS website shows the fees for different payment processors:
So, you’ll already be adding 2% on top of any taxes you’re paying. If you’re not able to pay off your credit card in full when it’s due and you don’t have a 0% APR introductory period on the card you’re using, you could end up paying significantly more in interest if you carry your tax balance over to the next statement period.
The Rewards Are Usually Not Significant
One reason you may be thinking about paying your taxes on a credit card is the rewards potential. Unfortunately, that potential is very low. Cash back rewards cards generally top out at 2%, and the return on using points cards is similar.
There’s a chance you just got a new card and paying your taxes will help you hit a sign-up bonus minimum you wouldn’t have otherwise met, but otherwise you probably won’t benefit much in the form of rewards.
Large Credit Card Balances Could Mean Lower Credit Scores
Any time you make large purchases on your credit cards and drive the balances up, you could be negatively impacting your credit scores.
Utilization, or the percentage of your credit limits that you’re using, is a major factor in credit scoring models. If your tax bill is big and your credit limits aren’t, putting taxes on your credit card could significantly decrease your credit scores until you pay off the balance.
Deciding Whether to Pay with a Credit Card
If your card earns at least 2% in cash back, you have high credit limits, you plan to pay your new balance in full to avoid interest, and you don’t expect to earn much in rewards, then paying taxes with a credit card my be a convenient choice.
Or, you may be going through tough times and may not have the cash available to pay your tax debt.