Should I Pay Taxes With a Credit Card?

 If you owe Uncle Sam a tax bill, you might be wondering if you can pay your taxes with a credit card?

Or may be you don’t expect to owe and just procrastinate things to the last minute. If that sounds like you, scroll down to the end. I’ve got some resources to help you save on filing. 

Disclaimer: none of this content should be considered tax advice. If you have questions about your specific situation and goals, consult a Certified Public Account who you trust. 

How much does it cost to pay taxes with a credit card?

If you owe a tax bill, the most common way to pay is by ACH. This method draws the money directly from your bank account, making it quick and easy, with no extra fees. 

But what if you want to squeeze some extra rewards out of a tax payment by paying your taxes with a credit card? If Uncle Sam is asking you to pay up, maybe you could get something out of it. Is it worth it?

According to the IRS, the processing fee to pay your taxes with a credit card is 1.82% with PayUSAtax. (Other services charge higher rates of 1.87% or 1.98%, but I’m focusing on PayUSAtax here because it accepts all major credit card issuers.) 

You also may be able to pay state taxes with a credit card, but rules and the processing fees vary widely. I searched a few states, and each time, the processing fee for state taxes was higher than with federal taxes. Each state I checked had processing fees above 2%. 

When to consider paying taxes with a credit card

Because paying your taxes with a credit card will cost you an additional fee of just under 2% of your total tax bill, you need to decide whether doing so makes sense. Here are some cases when it could: 

• Your card earns at least 2% rewards rate: This matters because the points earned could at least neutralize the fee you’ll pay.
• You’re working to earn a welcome offer: If you’re working to earn a welcome offer on a new credit card, paying your tax bill with that card could help you hit the minimum spending level you need to earn the bonus. 
• You’re working towards another spending-based cardholder perk: This could be an option if you have an airline credit card that helps you achieve elite status through card spending.

Of course, each of these scenarios assumes that you then pay off your credit card bill in full before the statement is due. This is important because credit card interest will cannibalize any rewards you earn. 

Cards to use for paying taxes

If you do decide that you want to pay taxes with a card, which credit card should you use? The best options would be cards that earn at least 2X points per dollar. 

Another option to consider would be any travel credit card that you’re working to meet the spending requirements to earn its welcome offer. 

Examples

How would that look if you paid Uncle Sam with a credit card? Hypothetically, let’s say you owe $10,000 in 2023 income taxes. 

Tax bill: $10,000

Credit card processing fee: $10,000 x 1.82% = $182.00

Total expenses: $10,182

Let’s say you used a credit card that earns 2X travel points per dollar spent (in other words, this is a 2% points rewards rate).

Points earned: 

$10,182 x 2X points = 20,364 points

Earning a welcome offer

Earning than 20,000 points isn’t bad, but could this be even more rewarding? If you’re working on earning a welcome offer, the answer is yes. 

That’s pretty steep, but if you paid your taxes with the card, you could be two-thirds of the way there. 

It’s worth noting that in this example, the Amex Business Platinum card does not earn 2X points per dollar on general spending. The value of paying your taxes with a card like this would be hitting that minimum spending level to earn the welcome offer. 

Working toward airline elite status

Let’s say you have an airline card that allows you to work towards earning elite status by spending on the card. Does it make sense to pay your taxes on this card?

I’m going to argue it’s less rewarding, but as the saying goes, “your mileage may vary.” 

Let’s return to our example of a $10,182 tax bill to show you why. 
 

From the tax bill, you’d therefore earn an additional $1,018 toward airline status. Added to the status boost you got, the math looks like:

$1,018 + $2,500 status head start = $3,518 status dollars

Then, let’s consult airline status tiers. In order to earn the lowest level of elite status with Delta, you’d need to earn $5,000 status dollars. 

This is why I do not think this method is too valuable. You would still need to earn roughly $1,500 (or spend approximately $15,000).

How credit cards can help with tax filing fees

If you use a service like TurboTax or TaxAct to file and prepare your taxes for you, your credit cards may help here, too. Many of these online tax preparation services charge you a filing fee to use their program. Whether you owe or are getting a refund, if you file through TurboTax, you’re going to have to pay their fee. 

This fee tends to increase as your taxes become more complex and require more forms for income sources or deductions. It also increases if you opt to file your state income taxes through a service like TurboTax. 

Fortunately, your credit card may offer you limited-time statement credit if you use your card to pay for this. Check the Offers section of your card’s app to see if you are targeted for a cash-back offer like this one from American Express:

To qualify, you’d have to enroll in the Offer, pay for TurboTax using the “enrolled card,” and make a purchase online with TurboTax. If you spend at least $50 with them by April 18, you should be eligible to receive a $10 credit. This would come in the form statement credit reducing your overall credit card bill. 

I used this Offer when I filed through TurboTax, and guess what the $10 cash back covered? Approximately the tax I was charged for using TurboTax software. Ironic? Maybe a little bit.