More and more taxpayers find that it hard to pay their tax bills, because they don’t have enough money in their bank accounts. The IRS has a new program called “Pay Your Tax With A Credit Card” to help taxpayers make payments on their tax bills. But there are some things you need to know before deciding if this is a good option for you or not.
In this post, we find out the following: Can You Pay Taxes With Multiple Credit Cards, what is the fee for paying taxes with credit card, paying taxes with credit card for points, and is it bad to make multiple payments on a credit card.
Can You Pay Taxes With Multiple Credit Cards
The IRS has added a new way for taxpayers to pay their bills. You can use a credit card to pay your taxes now, but it’s not cheap. There are several things you should know before deciding if this is a good option for you or not.
You can pay your taxes with a credit card.
Yes, you can pay your taxes with a credit card. But you’ll have to pay an additional fee for this service. In fact, it is considered a cash advance which means that it will be subject to an additional fee that could be as high as 25% of the total payment amount.
The reason why you shouldn’t pay your taxes with a credit card is because it isn’t recommended by most financial experts and lenders.
In case you haven’t paid enough attention in school or if you’ve forgotten what “the golden rule” is, here’s a quick reminder: “Do unto others as you would have done unto yourself.” That’s why paying your taxes with a credit card is not recommended—because it won’t do anything good for your finances in the long run!
If there’s any way we could steer away from this method of paying off our tax debts, we’d gladly take it!
Paying your taxes this way is considered a cash advance.
Paying your taxes this way is considered a cash advance. This means that you’re borrowing money from the credit card company, and then paying it back with interest.
Some banks charge hefty fees for cash advances, which can make them an expensive way to borrow money. The exact amount depends on the bank, but on average, it’s about 4% of the amount borrowed (using a $1,000 loan as an example).
Cash advances also carry higher interest rates than regular purchases; this is because cash advances are considered to be riskier than other types of transactions.
You’ll pay interest and fees if you choose this option.
This can be a great way to pay your tax bill, but there are some drawbacks. One is that you’ll pay interest and fees if you choose this option. Interest rates on personal loans are usually higher than the rate on your credit card, so your payment will accrue debt faster than it would with a monthly payment plan. This can add up quickly when it comes to taxes—a $10,000 tax bill at an 18% APR would rack up about $1,800 in interest over two years.
The other downside is that if you don’t pay back the entire amount by the due date of your loan, you’ll have to pay additional fees just like any other late payment on a credit card bill. If you take out a personal loan through Lending Club or Prosper Marketplace (two popular peer-to-peer lending websites), they will hit you with an early repayment fee if they approve your request for an advance and then ask for the money back before its original due date; this fee typically ranges between 8%–16%.
The IRS gives you three companies to choose from to pay with a credit card.
The IRS website has a list of companies that will accept credit card payments. These companies are called third-party processors, and the IRS charges a fee for using one. The processor also charges their own fee for processing the payment, which is determined by how much you owe and whether or not your payment goes through (for example, if an American Express card is used).
The government charges you if you use a credit card and the company charges you.
So, let’s say you want to pay your taxes with a credit card. You have two options:
- You can pay the IRS directly with your credit card and they’ll charge you 2.25%. This means that if you owe $5,000 in taxes, the government will charge you $125 as a processing fee.
- Or, if you’re paying via credit card but going through a third party service (like TurboTax), then they’ll charge another 2.9% plus 30 cents per transaction—but only on the amount above $2,500—which means if you owe $5,000 in taxes they’ll take another $130 from those funds because of their fee structure (so now instead of having $4999 left over after paying your taxes with this method; there are only about $4840 left).
What if my credit cards are maxed out?
If you’re like most people, you’ve probably got a few credit cards. If one or more of your cards are maxed out, then that’s too bad—you won’t be able to use them for tax payments.
But don’t worry: There are still plenty of ways to get money from your bank account into the government’s hands before April 15th. You can mail a check or money order through the USPS (which will take 5-7 business days), wire funds online directly from your bank account (usually free if done online), or pay with cash at an approved retailer who accepts credit card payments like Walmart and CVS Pharmacy.
Do I need to be an American Express member?
You do not need to be a member of the American Express credit card program to use it. Any valid credit card that is accepted by the IRS can be used.
Here’s how much you have to pay in fees to use a credit card.
- The credit card issuer will charge you a fee.
- You’ll also have to pay taxes and interest on the amount of money you withdrew from your account, if it’s not paid back within the year.
- The IRS charges penalties for late payments, which can be up to 30% of the total bill owed when owing more than $25,000 in taxes with a single credit card transaction.
- If you don’t pay off your balance within 6 months, this is referred to as being “involuntarily” charged interest at 18%. This doesn’t mean that only those who are late paying their bills are charged this rate—it’s just that many who do pay on time will be hit with it anyway if they carry large balances over from one month to another.
While you can use a credit card for the IRS agency, it usually makes more financial sense not to.
While you can use a credit card for the IRS agency, it usually makes more financial sense not to. If you’re going to pay your taxes with a credit card, here are some things to consider:
- The IRS will charge interest on the balance that’s left after your payment is applied—that’s true whether you use a credit card or another method of payment like check or money order. In other words, interest charges won’t go away just because you paid with plastic.
- You’ll still have to pay fees both to the IRS and your credit card company for using their services. And since these fees are typically applied as percentages rather than flat rates, they can add up over time if you don’t pay off your balance in full each month (or opt out of paying interest altogether by making an arrangement with your issuer).
- Even if all goes according to plan and there are no late fees charged by either organization involved in processing payments online through TurboTax®, paying taxes with a credit card could still leave an additional burden on top of what would otherwise be owed between April 15th (tax day) and June 15th (when payments must arrive). This means that not only will interest accrue over those months but also that any remaining balance owed at tax time is due immediately upon receipt from IRS offices before being processed as normal monthly dues.
what is the fee for paying taxes with credit card
The fees involved in paying taxes with credit can offset or even outweigh the value of the spending rewards you’d earn from the transaction itself. But there are some circumstances in which putting a big tax bill on your card can unlock a windfall of points, miles or cash back — such as when the payment qualifies you for a sign-up bonus or pushes you over a spending threshold.
Here’s what to consider to determine whether you’ll come out ahead.
Paying taxes with a credit card means paying 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’s three independent payment processors. Those processors charge your card, then send the 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:
If you file and pay using tax software such as TurboTax, your fees might be even higher. TurboTax, for example, 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 you’ll still be charged fees by the payment processor).
Given the fees, in many cases it’s simply not worth it to pay taxes with a credit card. If your card earns less than 1.87% back on the transaction, you’ll lose ground even after collecting your rewards.
And even if you can eke out a higher rate, the fees will take such a big cut that you might not bother. A handful of cash-back cards, for example, pay 2% on everything. Use one of those cards with an IRS payment processor and your net rewards will come out to between 0.02% and 0.13%. On a $10,000 tax bill, that’s a grand total of $2 to $13 in rewards.
Look beyond those basic spending rewards, though, and you may find an opportunity to rack up some major miles, points or cash.
Boosting your benefits with your tax bill
Paying your taxes with a credit card can give you outsize benefits in several ways.
Charge taxes to help earn a big introductory offer
Many rewards credit cards offer sign-up or welcome bonuses, where you can collect a giant stash of rewards for spending a certain amount within a relatively short period of time. The biggest bonuses are often 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 lucrative option: Use this chunk of spending as a way to claim other benefits.
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, in 2022, it was possible to earn 1,000 American Airlines AAdvantage bonus miles when you purchased certain H&R Block tax software. While that was worth only about $12 by NerdWallet estimates, it was an easy way to net more miles for a purchase you were 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.