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Should You Pay Your Taxes With a Rewards Credit Card?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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While most people don’t have a choice as to whether they’ll pay taxes or not, you can certainly choose how you want to pay your tax bill. Using a regular checking account is not only the most traditional and easiest route but it is also, most importantly, free. You can also use other methods, too, such as a debit card, wire transfer and even cash. And, yes, you can even pay taxes with a credit card.

Using the latter option — a credit card – to pay your taxes might sound potentially lucrative. In a new analysis of IRS data by MagnifyMoney, we found taxpayers who owe money to the IRS will face an average federal tax bill of $5,294. If you’ve got a great cashback credit card, that’s a lot of potential points you could rack up.

Before you swipe, consider the risks of paying your taxes with plastic, such as additional fees and the dangers of swapping one debt for another.

Ultimately, paying a tax bill with a credit card may not be a winning proposition — that is, unless you stand to gain something from it.

When paying with a rewards credit card makes sense

If you pay with a credit card, you’ll face fees ranging from 1.87% to 3.93% depending on how you file and how you pay. That means your challenge is simple — if you want to justify paying your tax bill with credit, you’re simply going to have to find a way to earn a greater net benefit than the amount you’re spending on fees.

Here are a few cases where that can happen:

With a no-fee 2% rewards card

Citi® Double Cash Card – 18 month BT offer

Annual fee

$0*

Cashback Rate

Earn 2% cash back on purchases: 1% when you buy plus 1% as you pay

Regular Purchase APR

15.24% - 25.24%* (Variable)

APPLY NOW Secured

on Citibank’s secure website

Typical credit card rewards are usually 1%, but there are exceptions. The Citi® Double Cash Card — 18 month BT offer effectively offers a 2% cashback rate without an annual fee. You earn cash back twice  — 1% on purchases and 1% as you pay for those purchases in full or over time.

Fidelity® Rewards Visa Signature® Card

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

2% on all spend

Regular Purchase APR

15.74%

Variable

APPLY NOW Secured

on Fidelity’s secure website

Another example of an unlimited 2% cashback card is the Fidelity® Rewards Visa Signature® Card. You have to have a “an eligible” Fidelity account in order to get your cash back, but it’s an easy condition to meet. Fidelity says eligible accounts include most non-retirement accounts (like IRAs), which means you could open a Fidelity® Cash Management account, for example, which is their version of a checking account. There’s no minimum deposit requirement to open an account. When you earn rewards from the card, you can then deposit your cashback earnings into that linked checking account.

There are other 2% cashback cards, but unlike the two cards above, most of them are annual-fee cards. An annual fee, plus the fees you’d incur by using the card to pay your taxes could totally negate any potential rewards you might gain.

2.5% or higher rewards card

There are better options that 2% rewards cards, although they are time-limited and more restrictive one way or another.

Discover it® Miles

Annual fee

$0

Rewards Rate

unlimited 1.5x Miles per dollar on all purchases, every day

Regular APR

13.74% - 24.74% Variable

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

The Discover it® Miles card offers 1.5x Miles, and it has another big perk going for it. Discover will match all the miles you’ve earned at the end of your first year, so long as you’re a new card member. That effectively makes it a 3% cashback card for the first year. And there is a $0 annual fee.

And don’t worry about the word “miles.” Discover miles are not real airline miles which can only be redeemed for travel. You can redeem your miles as a credit to your account for travel purchases or transfer them into a linked bank account. Each mile is the cash equivalent of one cent.

The downside to this plan is that the Discover it® offer is only good for new card members in their first year. After that, you’ll earn just 1.5x Miles per dollar spent.

Alliant Cashback Visa® Signature Card

Annual fee

$0 For First Year

$59 Ongoing

Cashback Rate

Unlimited 3% cash back during the first year; 2.5% cash back afterwards

Regular Purchase APR

11.99%-14.99%

Variable

APPLY NOW Secured

on Alliant Credit Union’s secure website

The Alliant Cashback Visa® Signature Card offers a whopping unlimited 3% cash back during the first year; 2.5% cash back afterwards. In addition, the $59 annual fee, waived the first year. Alliant Credit Union is easy to join, by donating $10 to Foster Care to Success.If you pay your taxes with a 3% cashback card, your profit will range from 1.01% to 1.13% for the first year of the card membership (based on the 1.87% to 1.99% convenience fee).

If you can nab a lucrative sign-up bonus

Credit card issuers often offer huge sign-up bonuses for a new card, but there is a catch – in order to qualify, you are supposed to meet a certain spending requirement that can be anything from $500 to $4,000 or more within a limited period of time.

The reason why issuers do that is to train you to use their card everywhere, so it becomes second nature after the threshold period is over. The problem for you, though, is that unless you’re a big spender, you might have a problem meeting the requirement and getting the bonus.

If that’s the case, you might want to pay taxes with the card even if it means losing a little cash on a convenience fee. Of course, that depends on the size of the bonus and the tax amount you’re charging to the card.

How paying taxes with a credit card works

You can pay taxes with a credit card on the internet, by phone or with a mobile device. You can also pay with a credit card when you e-file using a tax preparation program, such as TurboTax, H&R Block or others, although you will pay a higher fee for the “integrated e-file and e-pay debit/credit card option,” according to the IRS.

On the web or by phone

Visit the IRS page “Pay Your Taxes by Debit or Credit Card.” Select one of the processors and click the form or forms you need:

Processor

Debit Card

Credit Card

Digital Wallet

Pay1040.com

(Link2GovCorporation)

888-729-1040 Payment

888-658-5465 Service


International Non Toll-Free

1-501-748-8507 Live Operator

$2.59 flat fee














  • 1.87% fee

  • Minimum fee $2.59









See debit or credit card fees








PayUSAtax.com

(WorldPay US, Inc.)

844-729-8298 Payment

855-508-0159 Live Operator

844-825-8729 Service


International Non Toll-Free

1-615-550-1491 Payment

1-615-942-1141 Live Operator

1-615-550-1492 Service

$2.58 flat fee















  • 1.97% fee

  • Minimum fee $2.69









See debit or credit card fees




Includes:







OfficialPayments.com/fed

(Official Payments)

888-872-9829 Payment

877-754-4420 Live Operator

877-754-4413 Service


International Non Toll-Free

1-334-521-3842 Payment

  • $2.00 flat fee

  • ($3.95 flat fee for payments over $1,000)













  • 1.99% fee

  • Minimum fee $2.50









See debit or credit card fees






Source: IRS.gov

Please note that not all tax forms can be paid by a credit card, and there are other limitations as well.

E-file + E-pay integration

E-filing is more popular than ever, and for good reason. It’s very convenient and you can get your refund faster than someone who files on paper. The integrated e-file and e-pay debit/credit card option is available through some tax preparation software products, and tax professionals may offer the option as well.

You can use a credit card when e-filing, but with a higher convenience fee ranging from 2.35% to 3.99% (this fee integrates the e-filing and transaction fees). The IRS Pay by Debit or Credit Card page lists four integrated IRS e-file and e-pay service providers:

PAY1040.com/SpecialOffers/TurboTax

(Link2Gov Corporation)

1-888-658-5465 Service

2.49%

Minimum convenience fee $3.95

fileonline.1040.com

(WorldPay US, Inc.)

1-888-877-0450 Live Operator

2.35%

Minimum convenience fee $3.95

OfficialPayments.com/TurboTax

(Official Payments)

1-866-954-8426 Service

2.49%

Minimum convenience fee $3.95

FileYourTaxes.com

(File Your Taxes)

1-805-644-9398 Service

3.93%

Minimum convenience fee $2.00

Source: IRS.gov

More about those fees

Federal laws don’t allow the IRS to pay any fees for credit or debit card processing, so they have authorized several service providers to process debit and credit card payments for them.

There is another reason why you might want to consider using your rewards credit card to pay your taxes: The convenience fees may be tax-deductible.

Per IRS:

  • Your card statement will list this payment as “United States Treasury Tax Payment.”
    The convenience fee paid to your provider will be listed as “Tax Payment Convenience Fee” or something similar.”
  • The fee is deductible for personal tax types as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceed 2% of the adjusted gross income can be deducted. For more information, refer to Publication 529, Miscellaneous Deductions.
  • For business tax types, the fee is a deductible business expense.

The above doesn’t mean that everyone can deduct. First you need to itemize, and there are other restrictions as well. Talk to your tax advisor to find out whether or not you can deduct the convenience fee in your particular situation.

Can’t afford your tax bill?

Check out this guide on what to do if you owe taxes to the IRS.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Andy Shuman |

Andy Shuman is a writer at MagnifyMoney. You can email Andy here

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