Can you pay taxes with a credit card and how much does it cost?

Bynewspules
Spread the love

It’s possible to pay your taxes by credit card, but you’ll typically have to pay a fee of less than 2% of the total transaction. For example, a 1.75% fee on a $10,000 payment would cost $175.

If you’re trying to get a new card member welcome bonus, it might make sense to do so for a number of reasons, including the fact that you’ll be able to earn more rewards than the fee costs or take advantage of the 0% introductory APR offer on purchases.

You can pay your federal income tax bill by credit card, and most states allow you to use a major credit card to pay your taxes.

However, the IRS limits how often you can use a credit card for certain types of taxes. For example, on tax return Form 1040 – US Individual Income Tax Return – you can make two credit card payments per year to pay taxes. If you pay quarterly estimated taxes, you are limited to two credit card payments per quarter.

If you want to use a credit card to pay taxes, you must make payments to a third-party processor designated by the IRS to process credit card payments:

  • Pay 1040

  • ACI Payments, Inc.

They accept credit cards from all major credit card networks, including American Express, MasterCard, Visa and Discover. Both processors accept payments from certain digital wallets such as PayPal. PayUSAtax used to process tax payments, but it no longer works.

Here are the fees these companies charge for using a credit card as a payment method:

  • Pay a credit card charge 1040.: 1.75% (Minimum $2.50)

  • ACI Payments, Inc. Credit card payment: 1.85% (Minimum $2.50)

To pay by credit card, visit the IRS site and select one of the available third-party payment processors. The IRS will direct you to the company’s website, and you can choose to make a personal or small business tax payment.

These preparers accept federal tax payments by debit card at a discounted rate.

Read more: Here are 7 free tax filing options.

Using a credit card to pay what you owe on your taxes makes sense in the following four situations:

If you owe money at tax time, using a new card to pay off the bill can help you quickly meet the spending requirements for a credit card sign-up bonus. This can be especially helpful if you’re worried about meeting required spending limits with your regular budget. Regardless, it may be worth the extra service charge to guarantee your bonus as you will need to pay taxes.

Here are the cards with the best welcome offers:

Some rewards credit cards have a higher rewards rate to offset the third-party processing fees you pay when you use a credit card to pay taxes.

  • Capital One Venture Rewards Credit Card: Earn 2x miles on hotels, vacation rentals and rental cars booked with Capital One Travel and 5x miles on all other eligible purchases.

  • Wells Fargo Active Cash® Credit Card: Earn 2% cash back on all eligible purchases.

  • Citi Dual Cash® Card: Earn 5% cash back on hotel, car rentals and attractions booked through the Citi Travel℠ portal through 12/31/25 and unlimited 1% cash back on purchases, plus an additional 1% on every other qualifying purchase.

Certain IRS credit card payment processors allow PayPal payments, so you can earn more with cards that offer bonus rewards on PayPal transactions. It may include cards with rotating categories, such as the Chase Freedom Flex and Discover it® Cash Back Credit Card.

Unfortunately, surprise tax payments can occur. If you have a large amount of cash and don’t have the cash to pay it off straight away, using a 0% APR credit card can make it more manageable.

These offers allow you to avoid interest payments on your new qualifying purchases for a 0% introductory APR period, giving you the flexibility to pay off your balance over time.

Remember, you still have to make the required monthly payments, and plan to pay off the bill in full when the promotional period ends. Otherwise, the standard purchase APR – which can be well into the double digits – will apply.

If you’ve forgotten your tax bill and are likely to miss the payment deadline, using your card is one of the fastest ways to make a payment and make sure it’s done on time to avoid late payments.

When you use a credit card to pay your taxes, the third-party payment processor will send you a time-stamped confirmation of payment for your records.

Read more: How to file a tax return (Remember you still have to pay on the last day)

There are some advantages to using a credit card to pay taxes, but there are also some significant disadvantages to keep in mind:

As previously mentioned, third-party processors charge fees for processing tax payments made by credit card. Fees are typically less than 2% of the payment amount.

Credit cards are a relatively expensive form of credit.

If you use your card to pay your taxes and can’t pay the bill in full, interest will be added to the unpaid balance. Over time, interest charges can add hundreds or thousands to your expenses.

If possible, only use a credit card to pay taxes if you manage to pay off the balance in full by the due date to avoid costly high interest charges.

If you have a large tax bill and use your credit card to pay it, you can increase your bill by hundreds or thousands overnight. If the new balance takes up a large amount of your credit, the transaction will increase your credit utilization, which accounts for about 30% of your FICO score.

For example, let’s say you have a credit card with a $1,000 credit limit. You use the card to pay a $500 tax bill. After that, you have a balance of $500, so your credit utilization—the percentage of credit you’ve used—is 50%. Generally, lenders like to see a credit utilization of 30% or less, so such a high percentage can hurt your credit score.

If you use your credit card to pay your tax bill, you don’t have to worry about paying extra cash advance fees or a higher cash advance APR. The transaction is normally considered a retail purchase, not cash.

Most states allow you to pay your income tax by credit card, but you may have to pay a transaction or convenience fee. Here are some examples of fees in different states

  • California: Transaction rate 2.3%

  • New York: Transaction rate 2.2%

  • Virginia: 2.3% of the transaction (or a flat $1 if less than $43)

Some states limit the types of credit cards that can be used. For example, some states only allow the use of a MasterCard or Visa card for taxpayer payment options.

After you make your payment, you usually don’t have to send a copy of your payment voucher or payment confirmation email to the IRS. However, you will need to file your tax return or amended return.

This article was edited by Rebecca McCracken

Editorial Statement: The information in this article has not been reviewed or endorsed by any advertiser. All opinions are solely those of Yahoo Finance and not of any other party. Detailed information on financial products, including card rates and fees, is correct at the date of publication. All products or services are provided without warranty. Check the bank’s website for the most up-to-date information. This site does not include all currently available offers. A credit score alone does not guarantee or imply endorsement of any financial product.