This article on how to pay your taxes with a credit card has been updated for the 2023 tax season. 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 “financial things I wish I had known sooner” list. You do, however, have to pay attention to the details, otherwise, you could lose money with processing fees and/or not fully paying off your credit card balance monthly.
Here’s the topics covered in this article:
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 first before even considering this strategy.
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? It sounds kind of iffy, particularly with associated fees. Let’s dig into this 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:
The IRS has partnerships with 3 payment processors, and they charge the following processing fees (as of early 2023, subject to change):
- ACI Payments, Inc.: 1.98%
- Pay1040: 1.87%
- payUSAtax: 1.85%
As you can see, the processing fees currently range from 1.85% to 1.98%. With the lowest processing fee at 1.85%, payUSAtax.com appears to have the lowest processing fees for 2023, 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. I’ve personally used both pay1040 and payUSAtax and the process was pretty smooth with both. No issues.
Note: you can file your tax return through tax software without having to pay at that moment and then can pay through these payment processors after filing. The best 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 going directly through the payment processors shown here – usually around 2-3%. It seems as though the processors or the software are adding a surcharge on to their standard fee.
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 to the IRS with Cash Rewards Credit Card
Theoretically, if you use pay1040.com (1.87% fee), any rewards credit card that rewarded 1.87%+ 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 (e.g. Fidelity Visa). You may also want to look into the Discover It Miles, which typically offers 1.5% cash back, but double (3%) in the first year. There are a few credit cards out there that offer more than 2% cash back, but they are hard to find and get approved for.
Using a 2%+ cash back card could save you a few bucks and is more convenient than writing a check, however, it is often not a lucrative return on its own.
Paying Taxes to the IRS with a Digital Wallet
A few of the payment processors have begun taking digital wallet (e.g. PayPal) payments. Occasionally, credit card providers will offer promotions for specific cards. A few recent and future examples include:
- Chase Freedom Cards: Q4, 2022 offered 5% cash back on PayPal, up to $1,500 in combined purchases
- Discover It: Q3, 2022 – 5% cash back on PayPal, up to $1,500 in combined purchases
It stands to reason that, unless there are surprise fees, there could be some profit opportunities with these types of promotions.
Paying Taxes with a Credit Card to Meet Minimum Spend Requirements for Introductory Welcome 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 credit card 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. I’ve seen a few cards with 100,000 point bonuses for $5,000 in spend recently – resulting in 20% cash back. 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).
With quarterly and annual tax payments, I’ve taken advantage of these types of welcome offers dozens of times. It’s even possible to overpay on your tax payment in order to hit your credit card spend bonus amount. Be aware that you won’t be able to recoup the overpaid amount until you file the respective tax return (if you are due a refund, otherwise your overpayment will be subtracted from taxes due).
Paying Taxes with a Credit Card to Meet Spending Bonus Incentives
Aside from welcome/signup bonuses, a number of credit cards have annual spend incentives that result in bonuses when hit (e.g. “get a free night when you spend $10,000 in a calendar year”). 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 on your Taxes?
On top of the financials highlighted above, you may be wondering, “Are credit card processing fees tax deductible?”. The answer: 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 the 2018 to 2025 tax years with tax reform.
- Business/Self-Employment Taxes: for business income tax scenarios (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 applicable for everyone. Consult a tax professional if you are considering this.
Limit of Payments Per Processor:
If you paying taxes for your annual 1040 return, it is possible to make 2 payments with credit cards annually (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 an additional 4X.
The estimated tax payment deadlines in 2023 are:
|Quarter:||Time Period:||Estimated Tax Payment Deadlines (2022):|
|Q4, 2022||September 1, 2022 - December 31, 2022||January 17, 2023|
|Q1, 2023||January 1, 2023 - March 31, 2023||April 18, 2023|
|Q2, 2023||April 1, 2023 - May 31, 2023||June 15, 2023|
|Q3, 2023||June 1, 2023 - August 31, 2023||September 15, 2023|
|Q4, 2023||September 1, 2023 - December 31, 2023||January 16, 2024|
Where Can you See Credit Card Tax Payments Made to the IRS?
The IRS will post payments into your account. You can log in to your IRS account and see the details here. Add this to the list of reasons that I recommend creating an IRS account as one of the 5 government accounts everyone should create.
Paying State and Local Taxes with a Credit Card
This article is obviously focused on paying the IRS with a credit card, however, don’t overlook also paying your state income taxes with credit cards as well, if your state accepts it as a form of payment. This could include your state 1040 as well as state quarterly estimated tax payments (1040-ES). You may even be able to pay local taxes (income, property, etc.) with a credit card as well. As always, keep a close eye on processing fees before doing this.
Final Thoughts on Paying IRS 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.
If I plan on purchasing $5k of I Bonds when I submit my 2021 tax forms (From your great Janaury 1, 2022 article– You can buy up to $5,000 per Social Security number in literal paper bonds through the IRS as a form of tax refund payment using IRS Form 8888 …when you submit your tax return….), can I pay the $5k with a credit card? Win-Win?
I would think not. Paper bonds, in this scenario, are purchased with refund balance dollars (that the IRS already owes you), not credit cards.