It’s that time of year again: tax season! The IRS has reinstated the April 18 deadline for filing and paying individual tax returns for 2022. And if you’re anticipating a tax bill rather than a return this year, you may be considering if it makes sense to use a credit card to settle the bill.
It may seem risky to use a credit card to pay your taxes, but this is the best option in some situations. For instance, you can only pay your taxes for several weeks after the IRS deadline. Still, you expect to receive the funds necessary to do so soon. A credit card can be used as a short-term loan to service your debts until you can find the money to pay them off in full.
Tax payments might be spread over months or even a year using a credit card with a 0% APR promotion. You can escape the IRS’s interest charges for making a delayed payment by using a credit card with 0% interest to settle your tax bill.
Credit card incentives are another incentive for taxpayers to use plastic. There are costs associated with doing so, but if you can earn incentives that are valued more than the fee, you may still come out ahead, provided you pay off your credit card balance in full each month.
The decision to pay your taxes with a credit card might be motivated by several factors. Still, if you’re going to make the leap, it’s essential to understand how to do it and which cards to use to maximize your return on investment.
How do you use a credit card to pay federal taxes?
To be fair, the United States government doesn’t take credit cards for tax payments yet. However, it has approved three separate organizations to handle credit card payments for federal taxes.
Using a credit card to pay your tax bill incurs a fee from each of these companies, typically expressed as a percentage of the total amount paid.
The IRS accepts payments through various credit and debit cards, and the fees associated with each type of transaction vary based on the firm you use. Here is a rundown of the several businesses that take credit card payments for federal taxes, along with the fees associated with using each one as of this posting:
payusatax.com – Credit card fees: 1.96% (minimum fee of $2.69) / Debit card fees: $2.55
pay1040.com – Credit card fees: 1.87% (minimum fee of $2.50) / Debit card fees: $2.50 (Consumer and personal debit cards only.)
fed.acipayonline.com – Credit card fees: 1.98% (minimum fee of $2.50) / Debit card fees: $2.20
If you wish to use a credit card to settle your tax bill, you’ll need to do it not at the IRS’s website but on the site of the company you’ve chosen. To pay this way, you must reveal some identifying information about yourself (usually a social security number).
One helpful hint is to see if your state accepts credit card payments for state taxes; many do. State credit card convenience costs are generally the same as federal credit card convenience fees, so shopping around is essential if you plan to pay your state taxes using a credit card.
According to the data presented, the lowest possible percentage fee for using a credit card to pay federal taxes is now 1.87%. Many cashback credit cards give less than 1.87% in rewards, which means you’d spend more in fees than you’d get back in rewards if you used a credit card, which is a significant turnoff for rewards fans.
However, some credit cards with a better earning percentage or other benefits may be worthwhile despite the card’s higher annual fee.
Should you use a credit card to pay your taxes?
While using a credit card to pay your taxes may be tempting, doing so is only a good idea if you have a specific strategy. For example, if you intend to accrue points on a credit card, you should plan to pay off your balance in full each month to avoid interest charges. Alternately, suppose you intend to reap the benefits of an introductory 0% APR. In that case, you’ll need to calculate how much you can afford to pay each month to ensure that your tax debt is paid off before the introductory period ends.
Finally, you must have a practical reason and a plan if you wish to use a credit card to pay your taxes. It’s a good idea if and only if your financial condition warrants it.
That said, let’s check out our top choices.
Chase Freedom Unlimited
Chase Freedom Unlimited is the best credit card if you need more time to pay your taxes but also want to avoid paying a hefty penalty fee.
All expenditures, including your tax payment, will earn you 1.5% cash back when using this card. Chase Freedom Unlimited helps you save money on interest by offering a 0% intro APR on balance transfers and purchases for the first 15 months following account opening. Remember that if you don’t pay off your balance in full by the end of the 15 months, the APR will increase to a variable of 19.24% to 27.99%.
Chase Freedom Unlimited cardholders receive 3% cash back on all other purchases, as well as 5% back on travel transactions purchased through Chase Ultimate Rewards, for no annual fee. Your cashback can be converted to travel points at even more advantageous redemption rates if you possess a Chase Sapphire Preferred or Chase Sapphire Reserve® credit card.
Citi Double Cash
Suppose you expect to pay a significant tax obligation and are looking for a way to come out ahead in rewards terms. In that case, the Citi Double Cash Card may be a good choice. With this card, you’ll get two percent cash back on all purchases and repayments, for a total of two percent.
You can cash in your rewards for statement credits, credits to linked accounts, or a check in the mail (with a $5 minimum redemption when requesting a check) with the Citi Double Cash program. Use your Citi Premier® Card to pay your taxes and redeem your Double Cash rewards for travel and transfers to Citi’s airline and hotel partners for an even better deal. Each Citi ThankYou point is worth 1 cent in cash back.
The Citi Double Cash Card doesn’t have an annual fee and comes with a 0% initial APR on balance transfers for the first 18 months. After that, the variable APR ranges from 18.49% to 28.49%. Suppose you have balances on other credit cards and need breathing room to pay them off without accruing too much interest. In that case, this may be an option worth considering.
Blue Business Plus from American Express
Suppose your small business has to use a credit card to pay its business taxes. In that case, the American Express Blue Business Plus Credit Card is a perfect option. With this card, you’ll get two points for each dollar spent on anything up to $60,000 yearly, and one point for every dollar spent beyond that. There is also no yearly membership charge.
You can get cash back, shop on Amazon, or use your points to book a vacation with American Express Travel with your Membership Rewards points. Nonetheless, Delta, JetBlue, Air Canada, Marriott, British Airways, and many others are just a few of the 20 airlines and hotels that accept Amex as a transfer partner.
For the first 12 months after opening an account, new Blue Business Plus cardholders enjoy an initial 0% APR on purchases. After that, the variable APR ranges from 17.74% to 25.74%, depending on the cardholder’s credit (see rates and fees). In conclusion, this card allows you to receive rewards on your business taxes while spreading out the payment of that amount over an entire year with no interest.
Hilton Honors American Express Surpass
Maybe it hasn’t occurred to you yet, but you can receive a free night at a hotel by doing your part in the tax system. You may discover how the Hilton Honors American Express Surpass Card can function by looking into it.
You’ll receive a free night’s stay if you pay $15,000 or more on your Hilton Surpass card within a calendar year. For example, if you have a hefty tax bill, you may use this card to pay the entire amount and rapidly earn enough points for a free night’s stay at a Hilton hotel.
Hilton Surpass cardholders receive 12 points for every $1 spent on Hilton purchases, 6 points for every dollar spent in U.S. restaurants, U.S. supermarkets, and U.S. gas stations, and 3 points for every dollar spent on everything else, including taxes. As of now, up until the end of 2022, all bonus points gained from qualifying purchases will be included as Base Points toward qualification for the Elite tier and Lifetime Diamond status.
Additional perks of the card include ten annual access to airport lounges with Priority Pass and complimentary Hilton Honors Gold elite membership. The Hilton Surpass card has a $95 yearly fee (reduced to $0 for the first year with the current offer). Those who don’t already have it can get 150,000 extra points by charging $3,000 to the card within the first six months (the offer is valid until 4/5/2023).
Chase Sapphire Preferred
The Chase Sapphire Preferred credit card is an excellent option if you want to turn your tax payment into travel rewards. If you open an account and spend $4,000 within the first three months, you will receive 60,000 bonus points.
When you use the Chase Sapphire Preferred, you’ll receive 2 points on all travel (or five total points if purchased through Chase Ultimate Rewards), 3 points on dining, select streaming, and select online grocery purchases, and 1 point on everything else.
The annual cost of $95 is steep, and the fact that you’ll only receive 1 point per dollar spent on taxes is a major drawback of the card. The sign-up bonus of 60,000 points may be worth $750 in travel when redeemed through the Chase travel site or the “Pay Yourself Back” feature of the card.
You may use the Chase Sapphire Preferred to earn points with Chase’s Ultimate Rewards program, which allows you to transfer those points to 14 prominent airline and hotel partners, such as United Airlines, Southwest Airlines, Hyatt, and Marriott. Primarily when used for premium cabin tickets like first class or business class, the value of your points can increase significantly after a transfer.
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