Can you pay taxes with a credit card — and should you? (2024)

It can seem enticing to pay taxes with a credit card. After all, you can enjoy at least a 21-day grace period on your payment and may even earn rewards.

But that doesn't consider any processing fees associated with credit card payments that may outweigh the benefits. So if you can pay taxes with a credit card, is it worthwhile?

Below, CNBC Select reviews if you can pay taxes with a credit card and the benefits and drawbacks of using a credit card to pay taxes.

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Yes, you can pay taxes with a credit card, but the real question is, should you?

Unlike paying your taxes with a bank account transfer, credit card payments aren't free. You'll wind up incurring a fee that's a percentage of your tax payment. The fee you're charged varies by the payment processor you choose.

The IRS breaks down the fees for each payment processor:

• PayUSAtax.com: 1.85% fee, minimum $2.69
• Pay1040.com: 1.87% fee, minimum $2.50
• ACI Payments, Inc.: 1.98% fee, minimum $2.50

And if you decide to pay with an integrated IRS e-file and e-pay service provider, the fees may be higher:

• PAY1040.com/SpecialOffers/TurboTax: 2.49%, minimum $3.95
• Fileonline.1040.com: 2.35% fee, minimum $3.95
• FileYourTaxes.com: 3.93% fee, minimum $2

Earn credit card rewards

If you use a rewards credit card to pay your taxes, you can earn cash back, points or miles.

For instance, if you owe $1,000 in taxes and choose to pay it with a credit card using the cheapest payment processor Pay1040.com, you'll incur a 1.87% fee. In order to recoup the fee and earn extra rewards, you'll need a card with at least a 1.87% rewards return — which rounds up to a 2% or 2X rewards card.

So, the Citi Double Cash® Card would be a good choice, offering 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. Plus, for a limited time, earn 5% total cash back on hotel, car rentals and attractions booked on the Citi Travel℠ portal through 12/31/24. After subtracting the 1.87% fee from the 2% on every purchase, you'd be on track to earn 0.13% cash back on your $1,000 tax payment — which works out to $1.30. That's a minor number, but it can be more if you owe more.

Benefit from special financing

If you're looking to buy some time on tax payments, you may consider paying with a credit card to benefit from an intro 0% APR period. Cards like the Discover it® Cash Back provide over a year of special financing on new purchases, but you need to be OK with forking over the processing fee. The Discover it® Cash Back offers 0% intro APR for the first 15 months on purchases and balance transfers (after, 17.24% - 28.24% variable APR). There is a 3% intro balance transfer fee with an up to 5% fee on future balance transfers (see terms).

Meet spending requirements for welcome bonus offers

If you open a new credit card with a welcome bonus, charging taxes to your card can help you meet the spending requirement. Before using a credit card, do the math to see if the bonus reaps a higher reward than the processing fee.

For example, the Chase Sapphire Reserve® has a welcome bonus offer of 60,000 bonus points after you spend $4,000 on purchases in the first three months from account opening. If you charge $4,000 in taxes to the Chase Sapphire Reserve® using the cheapest payment processor Pay1040.com, you'll incur a $74.80 fee. But considering the bonus is worth up to $900 toward travel when you redeem through Chase Ultimate Rewards®, the processing fee may be worth it.

Convenience factor

Completing an online credit card payment is quick, and you receive instant confirmation that your payment went through. However, you'll have to pay the applicable fee. As an alternative, if you pay with an online bank transfer, you can receive instant confirmation and get the added convenience of no fee.

Processing fees

Credit card tax payments incur a fee from the payment processor. The fee varies by processor and is currently 1.85% to 3.93% of the payment with a $2.50 to $3.95 minimum, according to the IRS.

If you pay with a credit card that offers a lower percentage of rewards than the fee, it doesn't really make sense to use a credit card.

Interest charges on unpaid balances

If you use a credit card to pay taxes, it's key to pay your balance in full by the due date to avoid interest charges. Otherwise, you can risk debt and high interest charges if you only make the minimum payment and carry a balance month-to-month.

For example, if you charge $1,000 in taxes to a credit card with the average 16.88% APR and only make minimum $35 payments, it'd take you roughly 37 months to pay it off and cost you $287 in interest charges. And if you pay with a credit card, you won't be able to take advantage of any payment plans offered by the IRS.

High credit utilization rate

Paying taxes with a credit card can also potentially have a negative impact on your credit score. Charging high tax payments to a credit card can cause a spike in your credit utilization rate, which is the total percentage of your credit you use.

To calculate your utilization rate, simply divide your total credit card balance by your total available credit. So if you have two credit cards with a combined $3,000 balance and a total $10,000 credit limit, your utilization would be 30%. Adding a $2,000 tax payment to that would increase your utilization rate to 50%, which is high.

Credit score calculations weigh your credit utilization rate and it's ideal to keep it as low as possible. FICO found that "high-achievers" (consumers with credit scores 750 and above) maintain utilization rates below 15%.

If your credit card rewards or welcome bonus offer outweigh the processing fee, paying your taxes with a credit card can be a worthwhile option.

But if you're uncertain that you can pay your credit card balance in full by the due date and/or the fees are greater than any rewards, you should stick to free tax payment options, such as a bank transfer.

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