(NerdWallet) – Can you pay taxes with a credit card?
Yes — and with the right strategy, it can be a particularly lucrative decision for points and miles enthusiasts.
Paying a giant tax bill likely doesn’t incite warm, fuzzy feelings. But if you make the most of it, you at least might be able to cozy up in a fuzzy robe at a five-star hotel or under a blanket in your lie-flat, first-class airplane seat. That’s because paying taxes with a credit card can sometimes help you rack up mega points and miles.
Be aware that using a credit card to pay taxes isn’t for everyone, and it does entail fees that can sometimes exceed credit card rewards. But with the right strategy, your tax bill can net you a slew of credit card points and miles.
Decide if paying taxes with a credit card is worth the fees
The many ways to pay your taxes to the Internal Revenue Service include check, an ACH debit, wire transfer, cash payments, installment payments and yes, even credit cards.
To make an IRS payment with a credit card, you’ll have to use one of the IRS’ three independent payment processors, which then sends your money to the IRS.
But these payment processors charge fees, which start at either $2.20 or 1.87% of your overall bill, whichever is higher. Here are the processors and their fees for 2022:
|ACI Payments, Inc.||Pay1040||payUSAtax|
|Fee as a % of total bill (if greater than minimum fee)||1.98%.||1.87%.||1.96%.|
|Processing fees on a $500 tax bill||$9.90.||$9.35.||$9.80.|
|Processing fees on a $5,000 tax bill||$99.||$93.50.||$98.|
|Processing fees on a $20,000 tax bill||$396.||$374.||$392.|
If you file and pay through a tax software such as TurboTax, you might owe even higher fees. For example, TurboTax charges a 2.49% credit card convenience fee if you pay income tax via credit card through its website. You can file through TurboTax and pay taxes separately through one of the above payment processors (but still expect to be charged a convenience fee by the payment processor).
Given the fees, some experts suggest avoiding paying taxes with a credit card entirely. And if your card nets you less than 1.87% back in rewards, then certainly stop reading now, as you’ll owe more in processing fees than the value of your rewards.
But if you’re willing to embrace your inner nerd, then read on, as you can turn your tax bill into an opportunity to accrue major miles and points.
Earn the most points from your tax bill
You can rack up rewards by paying your taxes on a credit card in several ways.
Earn a sum of points and miles for your spending
Many rewards credit cards earn a fixed amount of points or cash back per dollar spent. As long as your card earns more than the 1.87%-1.96% fee, this can be a small rewards-generating venture.
For instance, a small handful of cash-back cards offer 2% back (and some offer even more), netting you 0.13% or more in earned rewards.
Charge taxes to help earn a big introductory offer
Many rewards credit cards offer introductory offers, where you can quickly amass a giant stash of points for hitting a certain minimum spending threshold within a relatively short period of time. Often, the biggest point bonuses are tied to bigger spending requirements.
You might find a card offering 100,000 points, but it’ll also require you to spend $10,000 within a few months. That might not be realistic for your normal spending, but could be attainable in the month you’re paying taxes.
Here are this month’s best credit card sign-up bonuses. And if it’s travel rewards you’re specifically seeking, here are the best travel credit card welcome bonus offers right now.
Hit spending thresholds on existing cards for more rewards
Earning 2% cash back when you’re paying a 1.87% credit card processing fee isn’t exactly going to make you rich. But here’s a potentially highly lucrative way to earn rewards: Use this chunk of spending as a way to net other rewards.
For example, many hotel cards offer free night certificates if you spend a hefty sum on them. Some Hilton cards offer free night certificates that can be redeemed for hotel night stays worth over $1,000, but they require you to charge thousands of dollars in a calendar year to the card.
Say you owe $15,000 in taxes and would owe $280.50 in Pay1040 fees. But if you charge it to the right Hilton credit card, you could walk away with a free night certificate and redeem it for a room at Hawaii’s opulent Grand Wailea Resort, which otherwise typically costs between $1,200 and $2,000 per night.
Meanwhile, many airline credit cards allow you to spend your way to elite status. For example, JetBlue’s credit card offers automatic JetBlue Mosaic status (which NerdWallet estimates has nearly $2,000 in value if you frequently fly JetBlue) if you spend $50,000 in a calendar year. That’s an unrealistic amount for most household budgets, but might be feasible if you have a large tax bill this year.
Say you charge $20,000 in taxes to the card and spend around $2,500 monthly on the card for a year. Your tax bill would incur close to $400 in processing fees, but the payoff to earn elite status benefits could be worth five times that.
Get points and miles from purchasing tax software
Certain tax preparation software companies run promotions to earn bonus points if you use them. If yours does, don’t forget to connect your accounts to take advantage.
For example, you can earn 1,000 American Airlines AAdvantage bonus miles when you purchase Basic or Deluxe H&R Block tax software before April 30. While that’s only worth about $12 by NerdWallet estimates, it can be an easy way to net more miles for a purchase you’re likely making anyway.
Other tips for paying taxes on credit cards
If you opt to pay taxes with credit cards, there are a few other things you should know:
- Understand your credit limit: You might have a $10,000 tax bill to charge to a credit card, but take caution if you only have a $5,000 credit limit. Exceeding that limit can sometimes incur additional penalties or have a negative impact on your credit scores.
- You can use multiple credit cards: Paying taxes across multiple credit cards can be handy in avoiding that exact situation of exceeding your credit limit. Charging two different cards can also help you capitalize on two separate sign-up bonuses. If you’re paying money owed on a Form 1040, you can use two different payment types per tax year (or two per month if you have an installment agreement).
- Avoid paying interest: In general, it’s not a good idea to make charges on a rewards credit card that you cannot pay off in full purely for the sake of earning rewards. The amount you’ll owe in interest is typically more than the value of the rewards.
If you can’t afford to pay your tax bill in full, you’re likely better off applying for a payment plan with the IRS.
The bottom line
If you’ve got a bunch of money to spend in one go (like taxes), you might be able to jump on a sign-up bonus or qualify for a hotel free night certificate that typically requires hefty spending.
Just understand the cost in fees before you pay taxes with your credit card.