Is it ever OK to pay your taxes with a credit card?

Young woman with credit card and laptop computer.
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While most people don't have a choice as to whether they'll pay taxes or not, you can certainly choose how you want to pay your tax bill. Using a regular checking account is not only the most traditional and easiest route but it is also, most importantly, free. You can also use other methods, too, such as a debit card, wire transfer and even cash. And, yes, you can even pay taxes with a credit card.

Using the latter option - a credit card - to pay your taxes might sound potentially lucrative. In a new analysis of IRS data by MagnifyMoney, we found taxpayers who owe money to the IRS will face an average federal tax bill of $5,294. If you've got a great cashback credit card, that's a lot of potential points you could cash in by paying Uncle Sam with your card. 

Before you swipe, consider the risks of paying your taxes with plastic. Most financial experts will advise against paying taxes with a credit card if you have other options. Federal laws don't allow the IRS to pay fees to credit or debit card processors. 

That, unfortunately, means that those credit card processors will pass those fees on to you, the credit card user. To use a credit card to pay your taxes, you'll pay a convenience fee that can range from 1.87% to 1.99%. 

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If you use the IRS e-file and e-pay option, the fees are even higher, from 2.35% to 3.93%.

In addition, you're also just swapping one type of debt for another if you pay with a card and can't pay it off. If you don't pay off your balance every month, your balance could become subject to your regular credit card interest rate.

You can see why paying a tax bill with a credit card may not be a winning proposition - that is, unless you stand to gain something from it. 

If you use a rewards credit card, you get points, miles or cash back on every purchase, and there can be other advantages as well. Of course, the only way it can be a viable option is if you pay off your credit card charges every month and never carry a balance.

Here's when it makes sense: 

  1. If you get a rewards card with at least a 2% rewards rate. Because of the fees, you need to earn at least enough to make up for them  - and then some. Just watch out. Many cashback or rewards cards carry annual fees, which just makes it all that harder to justify using them to pay your tax bill. 
  2. You can get a good sign-up bonus. Credit card issuers often offer huge sign-up bonuses for a new card, but there is a catch - in order to qualify, you are supposed to meet a certain spending requirement that can be anything from $500 to $4,000 or more within a limited period of time.  If you stand to gain a major bonus do the math - you might want to pay taxes with the card even if it means losing a little cash on a convenience fee. Of course, that depends on the size of the bonus and the tax amount you're charging to the card.

How paying taxes with a credit card works

You can pay taxes with a credit card on the internet, by phone or with a mobile device. You can also pay with a credit card when you e-file using a tax preparation program, such as TurboTax, H&R Block or others, although you will pay a higher fee for the "integrated e-file and e-pay debit/credit card option," according to the IRS.

On the web or by phone

Visit the IRS page "Pay Your Taxes by Debit or Credit Card." Select one of the processors and click the form or forms you need. 

E-file + E-pay integration

E-filing is more popular than ever, and for good reason. It's very convenient and you can get your refund faster than someone who files on paper. The integrated e-file and e-pay debit/credit card option is available through some tax preparation software products, and tax professionals may offer the option as well.

You can use a credit card when e-filing, but with a higher convenience fee ranging from 2.35% to 3.99% (this fee integrates the e-filing and transaction fees). The IRS Pay by Debit or Credit Card page lists four integrated IRS e-file and e-pay service providers.

Can't afford your tax bill?

You must still file your taxes on time. Contact the IRS to ask about payment plan options

MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.