Want to take a bit of the sting out of paying taxes? Good news. You can easily and quickly pay taxes with a credit card AND simultaneously profit from doing so.
I didn’t know this was possible until a few years ago. Add it to my “things I wish I had known sooner” bucket. You do, however, have to pay attention to the details, otherwise, you could lose money with processing fees.
Should you Pay Taxes with your Credit Card?
First off – a mandatory disclaimer: you should only consider paying taxes with a credit card if you pay your card balances in full every month. If you do that, read on. If not, go do that.
As I’ve highlighted, you can pay your taxes online in 4 different ways – one of which is to pay via credit or debit card. Paying your taxes online is the preferred method of paying taxes, for the reasons I highlighted in that post.
But paying taxes with credit cards? Let’s dig into that option further. At first glance, the costs of paying your taxes online with a credit card may seem prohibitive. Each of the 3 official credit card payment partners of the IRS charges a processing fee. And it’s not an insignificant fee:
Fees range from a tight 1.96% to 1.99%. With the lowest processing fee at 1.96%, payusatax.com appears to have the lowest processing fees for 2021, but that could change if one of the others lowers their processing fees. You can double check fees and start the payment process on the IRS’s credit card payment page.
Note: you can file your tax return through tax software without having to pay at that moment and pay through these payment processors after filing. Popular tax prep software programs often come with their own fees through payment processors for paying with a credit card, and they are typically higher than the payment processors shown with the 3 processors here.
A near 2% fee is still fairly high though – so how is it possible to profit, when you clearly need to surpass that fee with rewards earnings?
Paying Taxes with Cash Rewards Credit Card
Theoretically, if you use payusatax.com (1.96% fee), any rewards credit card that rewarded 1.96%+ would result in a profit. There are a few rewards cards that earn 2%, for example. Check out some of the best cash back rewards cards here. The Citi Double Cash offers 1% when you spend and 1% when you pay (2% combined), but there are other cards that offer 2%+ as well.
2% alone could save you a few bucks and is more convenient than writing a check, however, is often not a lucrative return on its own.
Paying Taxes to Meet Minimum Spend Requirements for Introductory Credit Card Signup Bonuses
Another way to benefit by paying taxes with a credit card is it can allow you to meet lofty minimum spend requirements for large welcome or signup bonuses from one of the many lucrative general travel, airline/air miles, hotel, and business credit cards that you may have recently applied for (usually required within the first 3 months of card membership). These bonuses can be hard to hit with everyday spend alone.
It’s not uncommon for cards to offer the equivalent of a $500 bonus for $3,000 in spend, for example. That’s 16.66% cash back, assuming you’ve spent nothing on everyday expenses. Some come with even more lucrative offers.
On top of that, you would also get the normal rewards for using that card to make the payment (typically 1%, but up to 5% in some categories).
Paying Taxes to Meet Credit Card Spend Bonus Incentives
Aside from welcome/signup bonuses, a number of credit cards have annual spend incentives that result in bonuses when hit. These are commonly in the form of free night rewards with hotel credit cards or elite status, for example.
Can you Deduct Credit Card Processing Fees?
Are credit card processing fees tax deductible? It depends:
- Personal Taxes: for typical W-2 income, you used to be able to deduct credit card processing fees as “miscellaneous” itemized deductions (if miscellaneous deductions were greater than 2% of your adjusted gross income). However, this deduction was eliminated for 2018-2025 with tax reform.
- Business/Self-Employment Taxes: for business tax types (e.g. self-employment), credit card processing fees are a deductible business expense.
If you’re eligible, deducting credit card processing fees would add even more profit added to your bottom line.
Note: I’m not an accountant, so do not take this as tax advice, and consult a tax professional if you are considering this.
Limit of Payments Per Processor:
If you paying taxes for your annual return, it is possible to make 2 payments with credit cards (according to this IRS payment frequency table). In practice, however, many have reported that these limits are actually per payment processor (in other words 3X that number, or 6 total). Your mileage may vary.
This allows you to split up payments across multiple cards if you have a large tax bill or you have multiple incentives that you would like to hit.
Paying Estimated Tax Payments with Credit Card
Additionally, if you have self-employment income, you can not only pay for your annual tax return with credit cards, but you can also pay estimated tax payments quarterly with credit cards as well. This ratchets up your opportunities to earn over the course of the year by 4X.
Final Thoughts on Paying Taxes with Credit Cards:
If you pay your card balances in full, paying your taxes with a credit card can result in a profit. You just need to be very careful to be aware of any fees, pay your balance in full, and make sure that the transaction does not come with any additional fees from the credit card provider (e.g. treating the transaction as a cash advance and charging a cash advance fee). I personally have not experienced any extra fees from card providers over the last number of years, but that could change at any time.