Today is Tax Day and if you're rushing to file your return by midnight It could be tempting to pay your taxes with a credit card. After all, you'd have some breathing room until the bill was due and maybe even earn rewards.
The IRS adds processing fees to credit card payments, however. And if you don't pay your bill in full and on time, you could be looking at serious interest charges.
Below, CNBC Select reviews the benefits and drawbacks of using a rewards credit card to settle your tax bill.
Can you pay taxes with a credit card?
Yes, you can pay your taxes with a credit card. The real question, is should you?
Unlike paying your taxes with a check or automatic bank transfer, credit card payments come with a processing fee. The fee is a percentage of your tax payment that varies depending on the payment processor you choose.
More help: Can't pay your taxes? Here are your options
There is also a maximum number of card payments allowed, based on your tax type and payment type.
What it costs to pay taxes with a credit card or debit card
There are three IRS-approved third-party payment processors for debit and credit card payments. Each company has different fees:
- Credit card fee: 1.82% (minimum $2.69)
- Debit card fee: $2.14
- Cards accepted: Visa, Mastercard, Discover, American Express and more
- Credit card fee: 1.87% (minimum $2.50)
- Debit card fee: 1.87% or $2.50 minimum for consumer/personal debit cards
- Cards accepted: Visa, Mastercard, Discover, American Express and more
- Credit card fee: 1.98% fee (minimum $2.50)
- Debit card fee: $2.20
- Cards accepted: Visa, Mastercard, Discover, American Express and more
Pros of paying taxes with a credit card
Earn credit card rewards
If you use a rewards credit card to pay your taxes, you can earn cash back, points or miles.
For instance, if you owe $1,000 to the IRS and pay it with a credit card using payment processor PayUSAtax.com, you'll incur a 1.82% fee ($18.20). To recoup that fee and make a profit, you'd need to use a card with a return of more than 1.82% — which you can easily accomplish by earning $20 or more in rewards with a 2% cash-back card or 2X travel rewards card.
A card like the Wells Fargo Active Cash® Card offers unlimited 2% cash rewards on every purchase. After subtracting the 1.82% fee from the 2% cash rewards, you'd earn a 0.18% profit on your $1,000 tax payment — which is $1.80.
That's not a big return, but it would be higher if you owe more. Plus, a single tax payment could easily qualify you for this card's welcome bonus of $200 in bonus cash rewards after spending $500 in purchases in the first three months after opening the account.
Wells Fargo Active Cash® Card
Rewards
Unlimited 2% cash rewards on purchases
Welcome bonus
Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual fee
$0
Intro APR
0% intro APR for 15 months from account opening on purchases and qualifying balance transfers; balance transfers made within 120 days qualify for the intro rate
Regular APR
20.24%, 25.24%, or 29.99% Variable APR on purchases and balance transfers
Balance transfer fee
3% intro for 120 days from account opening then BT fee of up to 5%, min: $5
Foreign transaction fee
3%
Credit needed
Excellent/Good
See rates and fees, terms apply.
Enjoy special financing
If you need to put off paying your tax bill and have explored your options for delaying payment, a credit card with an intro 0% APR period could help: The Discover it® Cash Back card has no annual fee and an intro 0% APR for the first 15 months on purchases and balance transfers (after that, a variable 17.24% - 28.24% APR applies). There is a 3% introductory balance transfer fee with a fee of up to 5% on future balance transfers (see terms).
Discover will also automatically match all the cash back you've earned at the end of your first year. This card earns 1% back on spending that falls outside of its rotating 5% back bonus categories. With the welcome offer, you'd effectively earn 2% back on tax payments you make in the first year.
Discover it® Cash Back
Rewards
Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases-automatically.
Welcome bonus
Discover will match all the cash back earned for all new cardmembers at the end of your first year.
Annual fee
$0
Intro APR
0% for 15 months on purchases
Regular APR
17.24% to 28.24% Variable
Balance transfer fee
3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*
Foreign transaction fee
None
Credit needed
Good / Excellent
*See rates and fees, terms apply.
Read our Discover it® Cash Back review.
The Wells Fargo Active Cash Card also provides an intro 0% APR for 15 months from account opening on purchases and qualifying balance transfers (after that, a 20.24%, 25.24% or 29.99% variable APR applies). Balance transfers made within the first 120 days qualify for an intro transfer fee of 3% of the amount transferred, after that, a 5% fee of the amount you transfer applies ($5 minimum).
Meet spending requirements for welcome bonus offers
If you open a new credit card with a welcome bonus, charging taxes to your card can help you meet the spending requirement. Before using a credit card, however, do the math to see if the bonus outweighs the IRS's processing fee.
The Chase Sapphire Reserve® has a welcome bonus offer of 75,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. If you charge $4,000 in taxes on the card using PayUSAtax.com, you'll incur a processing fee of $72.80. Considering the bonus is worth $1,125 in travel when you redeem through Chase Travel℠, it may be worth it.
Chase Sapphire Reserve®
Rewards
Earn 5X total points on flights and 10X total points on hotels and car rentals when you purchase travel through Chase Travel℠ immediately after the first $300 is spent on travel purchases annually. Earn 3X points on other travel and dining & 1 point per $1 spent on all other purchases plus, 10X points on Lyft rides through March 2025
Welcome bonus
Earn 75,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,125 toward travel when you redeem through Chase Travel℠.
Annual fee
$550
Intro APR
None
Regular APR
22.49% - 29.49% variable
Balance transfer fee
5%, minimum $5
Foreign transaction fee
None
Credit needed
Excellent
Terms apply.
Read our Chase Sapphire Reserve® review.
Cons of paying taxes with a credit card
Processing fees
Credit card tax payments are charged a processing fee. No part of the fee goes to the IRS, and the amount varies on the payment processor you choose.
If you pay with a credit card with rewards that don't outweigh the fee, it doesn't make sense to use a credit card.
Interest on unpaid balances
If you use a credit card to pay taxes, it's key to pay your balance in full by the due date. Otherwise, you risk having to pay significant interest charges and even damaging your credit.
High credit utilization rate
Paying taxes with a credit card can also hurt your credit score by spiking your credit utilization rate.
To calculate your credit utilization ratio, divide your total credit card balances by your total available credit. If you have two cards with a combined balance of $2,000 and a total credit limit of $10,000, your utilization rate is 20%. Adding a $2,000 tax payment to that would increase your utilization rate to 40%, which is high.
FAQs
Can I use a credit card to pay my taxes?
You can use a credit card to pay your taxes, but you'll pay a fee for the privilege. Before you go this route, consider whether the rewards you'll earn are worth it and be sure you can continue to pay your card balance off in full each month.
Does paying your taxes with a credit card affect your credit score?
Paying your taxes with a credit card will not directly affect your credit score. However, your overall debt and credit utilization ratio will impact your credit score. If you pay your taxes with a card and don't pay the card balance off that can hurt your credit score.
What is the best type of credit card to use when paying your taxes?
The best type of credit card to use for paying taxes depends on what type of credit card rewards you prefer to earn. A cash-back card that earns 2% back on all purchases is always a good option. A travel card that earns transferrable rewards could be more valuable if you know how to get the most value from the points or miles.
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Bottom line
If your credit card's rewards or welcome bonus offer outweighs the IRS's processing fee, paying your taxes with a card may be worthwhile.
But if the fees are greater than any rewards or you're not sure you can pay the card balance in full by the due date, stick to one of the free tax payment options, such as a bank transfer.
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For rates and fees of the Discover it® Cash Back, click here.
