Paying Taxes With a Credit Card: When Does It Make Sense?

American taxpayers pay an average of nearly $14,300 in federal income tax annually, according to the Tax Foundation. 

So, it seems like a smart move to pay the taxman with your credit card and earn a heap of rewards points or cashback on that huge, unavoidable bill, right?

But paying taxes with a credit card comes with big caveats that should make you pause before pulling out the plastic. 

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Can You Pay Taxes With a Credit Card?

You can pay taxes with a credit card. Whether you should or shouldn’t is a more nuanced consideration.

The IRS partners with three third-party payment processors to facilitate credit card payments: PayUSAtax, Pay1040, and ACI Payments, Inc. 

These processors charge different percentage-based fees for facilitating credit card transactions, ranging from 1.82% on the low end (PayUSAtax) to 1.98% on the high end (ACI Payments, Inc.).

Depending on the credit card you use to make the payment, the rewards value you get back for the purchase may or may not exceed the processing fee you’ll pay. 

And all three companies have received their share of complaints with the Better Business Bureau. Some taxpayers who used these platforms say they’ve experienced:

• Glitches and double charges when submitting online payments
• Extremely long wait times to reach service representatives by phone
• Deflecting responsibility for payment issues and redirecting customers to the IRS 

Other taxpayers, however, report positive experiences. 

Review the range of negative and positive customer reports on sites like Reddit and the Better Business Bureau before deciding which, if any, of the processors you’d like to pay with.

READ MORE: How Do Taxes Work?

When To Pay Taxes With a Credit Card 

Aside from considering the reputations and fees of the different processing companies, you should review your credit card details before making an IRS credit card payment.

Paying taxes with a credit card can make sense if:

Your credit card has a 0% APR promotion

Some credit cards offer a 0% annual percentage rate (APR) on purchases for a limited period, generally between 12 and 21 months. 

This can help you avoid both IRS late payment penalties and credit card interest charges if you need more time to gather the cash for your tax bill.

Your card has a high “flat” rate

Some credit cards have flat rates — the rewards rate on every eligible purchase — higher than the processing fees charged by the IRS’s three credit card payment processing companies.

For example, if you’re paying business income taxes, the Capital One Spark Cash Plus earns 2% back on all purchases — just above the highest processing fee charged for paying taxes with a credit card. 

If you prefer travel rewards points over cashback, the Capital One Venture X Rewards Credit Card earns 2 Capital One miles per $1 spent.

And you can increase the value you get for those miles beyond one cent each by strategically transferring them to one of Capital One’s 15+ airline partners and redeeming them for flights.

READ MORE: How To Use Credit Card Points for Travel

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The payment qualifies you for a welcome offer

Big tax payments can be particularly useful if you’re trying to qualify for a credit card welcome offer, as some of the most lucrative welcome offers have high minimum spending requirements. 

The IRS allows you to make two or more credit card payments per year, depending on your tax return form. So, if your tax bill is large enough, you can cover it by making payments with different credit cards and qualify for multiple welcome offers.

When To Use Another Payment Method

While paying taxes with a credit card sounds like the perfect trick for piling up points or cashback, those rewards may not be worth the strain it can have on your finances and time.

You might want to avoid paying taxes with a credit card if: 

You don't have a plan to pay your balance

Using a credit card to pay taxes may shield you from the IRS’s late payment penalties. But it’s not the right money move if you won’t be able to pay off your card balance in full. 

According to the Federal Reserve, the average U.S. credit card APR was 21.76% as of August 2024. Use a credit card with that APR to make a $14,279 tax payment — the average annual income tax bill — and you’ll incur about $250 in interest charges after just one month of making only your minimum payment. 

That’s more than three times the penalty the IRS will hit you with for missing your payment due date by a month!

If you’re planning on using a credit card to pay taxes because you don’t have all the cash you need to cover your tax bill by its due date, consider alternative payment methods that may be more affordable over time, including:

• Make a partial payment from your checking or savings account via Direct Pay. There are no processing fees and paying at least some of what you owe will reduce penalties from the IRS.
• Take out a personal loan, which will likely have a lower interest rate than your credit card.
• Submit an application for an offer in compromise, which reduces the amount of taxes you’re required to pay, provided you qualify and are approved.

READ MORE: A Guide to Tax Filing Deadlines and Extensions

You're paying close to your deadline

Some taxpayers have reported months-long delays between making a credit card tax payment with a third-party processor and the date the IRS cleared the payment. 

After their tax payment due date passed during the delay, the IRS sent them notices of late payment and charged them preliminary late fees, even though they paid on time.

If this happens to you, the rewards you get from your big credit card tax payment may not be worth the hours you’ll spend going between the IRS and your payment processor in an attempt to rectify the situation. 

​​How To Pay Your Taxes With a Credit Card

If you’ve done a cost-benefit analysis of paying your taxes with a credit card and concluded that it’s the right step for you, here’s how to make the payment.

Start by gathering the following information:

• The tax form you used or will use to file your return with the IRS (1040, 1065, etc.)
• The year you want the tax payment to apply to
• Your exact name, address, and Social Security number (SSN) as they appear on your federal income tax return
• The payment amount you’d like to make

Then navigate to the payment forms for whichever of the three processors you’ve chosen and carefully input your tax and payment information:

• PayUSAtax
• Pay1040
• ACI Payments, Inc.

Some of the mix-ups experienced by disgruntled customers appear to have been caused by mistakes made when entering information into these companies’ payment forms, so triple-check all the details you input, particularly your SSN. 

Finally, save the payment confirmation number you receive from the payment processor so you can prove you paid on time if the wires between the processor and the IRS get crossed. 

FAQs

Can you pay state taxes with a credit card? 

Many states allow their residents to make income tax payments with a credit card, either directly on the state tax authority’s website or via a third-party payment processing company, like ACI Payments, Inc. 

But the processing fee for paying state income taxes with a credit card is often higher than the fee for paying federal income taxes with a credit card.

Are credit card fees deductible?

Credit card fees — including fees charged for paying your federal income taxes with a credit card — are tax-deductible for businesses, but not for personal income taxes.

TL;DR: Should You Pay Your Taxes With a Credit Card?

Paying taxes with a credit card can be tempting for earning rewards points, but it comes with significant drawbacks. The fees can quickly negate any rewards you might earn, and you may have issues with the payment processors.

Using a credit card might make sense if you have a 0% APR promotion or can maximize a card’s welcome offer or rewards rate. But avoid it if you can't pay the full balance immediately. 

For more tips on managing your money responsibly, check out these episodes of the Erika Taught Me podcast:

• How To Budget for Beginners
• How To Become Better With Money
• 10 Steps Towards Financial Wholeness

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Disclosure: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.