You can put your unpaid taxes on your credit card, but it may not be your best option.
The Internal Revenue Service makes it easy for people to pay their taxes, providing multiple payment options. You can pay via ACH direct debit, where funds will be deducted from the checking or savings account you provide to the IRS.
You can also mail a check to the IRS. As long as your tax returns and check are postmarked by April 15, Tax Day, you won’t face any penalties, interest charges, or late fees.
Finally, the IRS offers the option to pay your taxes with a debit card, credit card, or a digital wallet like PayPal. You won’t pay fees if you use a digital wallet like PayPal, Venmo, or Click to Pay. But paying taxes with a debit or credit card has associated fees, depending on the service you use.
According to the IRS website, you’ll pay fees of up to 1.98% for using a credit card. Refer to the table for the processing fee schedule based on the service you use.
| Service | Fees | |
| Debit | Credit | |
| payUSAtax | $2.14 | 1.82% (min. $2.69) |
| Pay1040 | $2.50 for consumer or personal, 1.87% for other (min. $2.50) | 1.87% (min. $2.50) |
| ACI Payments, Inc. | $2.20 | 1.98% (min. $2.50) |
Pros of Paying Taxes on a Credit Card
Paying taxes on a credit card can have many benefits, especially if you have good credit and a rewards card that offers you points for travel or gift cards or even cash back. If you need a little more time to pay your tax debt, a credit card provides that breathing room without having to file an extension and pay IRS interest and penalties. Let’s explore these advantages in depth.
Earn Points
If you have a top-tier credit card that pays cash back or points you can use on a future travel purchase or to buy gift cards, it might pay to put your taxes on your credit card. Just make sure to pay your bill in full when it’s due to avoid interest charges.
However, do the math to make sure your rewards program more than offsets the fees. If you don’t have a credit card that offers at least 2% cash back, and ideally 3% or 4%, you won’t even cover the fees collected by the payment service.
Avoid IRS Interest and Penalties
When you apply for a payment plan or installment agreement, the IRS charges interest on your tax debt equal to the federal funds rate (rounded off) plus 3%. That means the IRS interest rate for the second and third quarters of 2024 is 8%, or 5% + 3%.
Plus, if you ignore your tax debt and don’t apply for a payment plan when your tax bill is due, you’ll pay penalties on top of interest.
The median interest rate for credit cards in June 2024 is 24.37%, according to Investopedia. With this in mind, you’ll save money applying for an IRS payment plan, instead. However, there’s a caveat: If you have excellent credit and qualify for a card with a 0% introductory APR, you can save 8% on interest and just pay the one-time fee for credit card processing.
Just be sure to make all your credit card payments on time and pay the full balance before the introductory period ends to avoid interest charges.
Cons of Paying Taxes with a Credit Card
Depending on your personal finance situation, putting your tax debt on a credit card may not be the best choice.
Interest Charges
Interest charges are a double-edged sword. It’s tough to match the 8% interest rate the IRS charges, unless you either plan to pay off your credit card when it’s due or can secure a 0% introductory APR.
Processing Fees
Likewise, those 2% processing fees associated with paying your taxes by credit card can take a bite out of any potential rewards earnings. Do the math before you decide that paying your taxes by credit card is your best option.
May Hurt Your Credit Score
The amount of credit you have available plays a large role in determining your FICO credit score. Your credit utilization ratio, or the amount of debt you have relative to your available credit, makes up 30% of your total credit score, according to MyFICO.com.
In turn, your credit score determines your eligibility for certain loan products, including a mortgage, car lease or loan, a personal loan, or other credit cards. Your credit score may even affect your car insurance rates or ability to rent an apartment.
If paying your taxes by credit card will max out your credit limit on a particular card for a short time, or even put your credit utilization up past 30%, you may want to reconsider.
Additionally, if you open a new credit card for the sole purpose of paying taxes, your credit score will take an additional hit. New credit accounts bump your credit score down for a short time. New credit accounts for 10% of your score. Meanwhile, opening a new card reduces the average length of your credit history, which also lowers your credit score. The length of your credit history accounts for 15% of your score.
Finally, if you fail to make the minimum payments, your score can take a further hit. On the other hand, owing the IRS money does not affect your credit score.
How to Pay Your Taxes with a Credit Card
If you’ve weighed the pros and cons and decided paying your taxes with a credit card is your best option right now, it’s easy to do as long as the amount you’re paying is less than $100,000. First, visit the IRS website and choose one of the three payment processors that work with the IRS:
- payUSAtax
- Pay1040
- ACI Payments, Inc.
payUSAtax has the lowest fees, charging just 1.82%. However, if your tax bill is less than roughly $125, you’ll pay a lower fee with one of the other services, since the minimum fee with payUSAtax is $2.69, and the minimum fees for PayUSA or ACI are $2.50.
All three services accept Visa, Mastercard, Discover, and American Express. Once you’ve chosen a service, click the blue “Make a payment” button under that service and you’ll be taken to that third-party payment processing website.
If you choose Pay1040, you’ll also have an option to pay your taxes by phone.
Whichever service you choose, you’ll have to select “personal taxes” or “business taxes.” Then, choose what type of taxes you want to pay and the tax year for which you’re making a payment. Then, enter your payment details and other requested information, double-check to ensure it’s correct, including your account number and the CVV security code on the back of the card, and submit your tax payment.
Alternatives to Using Your Credit Card for Taxes
Using a credit card isn’t always your best choice to handle unpaid taxes, especially if you can’t pay it off before facing high interest charges. Here are a few other options.
Personal Loan
You can take out a personal loan for tax debt and then submit your payment to the IRS through ACH debit from your bank account or by check with no fees attached.
However, the average personal loan rate right now is 19.91% for a five-year loan and 15.70% for a three-year loan. This rate could be higher or lower depending on your credit score. While a personal loan can give you more time to pay off the debt from your tax bill, you might also pay loan origination fees.
Also, be aware of repayment terms; you might have pre-payment penalties if you can pay off the loan before the term ends.
IRS Payment Plan
The IRS offers a variety of payment plans to help people pay off unpaid taxes. You can apply for a short-term payment plan, which gives you an additional 180 days, or six months, to pay your tax debt in full. During that time, interest and penalties will continue to accrue, although the penalty rate is half of what it would be if you don’t sign up for a payment plan.
If six months isn’t enough time to pay off your debt, you may qualify for an installment agreement of up to 72 months. In some cases, the IRS will even give you 84 months to pay.
With a short-term payment plan or an installment agreement, you won’t have any prepayment penalties if you pay off the debt early, but you may be able to avoid additional penalties and interest charges.
Contact Alleviate Tax for Help
Alleviate Tax can help you establish a payment plan, IRS installment agreement, or a partial pay installment agreement (PPIA) to pay your taxes over time without putting your good credit at risk. We may even be able to negotiate a settlement so that you can pay less than you owe.
You won’t know your options for reducing your tax debt unless you reach out for a free, no-obligation consultation today.
FAQs
Is it worth paying tax with credit card?
If you have a rewards credit card that delivers at least 2.5% or more in cash back or travel points, you can offset the credit card processing fees associated with paying your federal taxes. If you have a card with a 0% introductory APR, using a credit card gives you more time to pay without accruing interest and penalties from the IRS. However, for many people, it’s not worth it to put their taxes on a credit card.
Is it safe to pay IRS with credit card?
The IRS offers three safe, third-party payment options to pay your taxes with a credit card. These sites are secure and your information is encrypted. For added security, consider generating a virtual account number for your credit card and using that number to pay your taxes.
Is it better to pay taxes with credit card or IRS payment plan?
Depending on your individual situation, you might save money and earn credit card rewards using a credit card to pay your taxes. However, if you can’t pay your credit card bill in full when it’s due or your interest rate is higher than 8%, it is better to apply for an IRS payment plan to get more time to pay.
