Learn How to Pay your Federal Taxes using Credit Card

Nowadays you can pay taxes with a credit card, but the real question is, should you? Though it is quite enticing to pay taxes with a credit card as you can enjoy at least a 21-day grace period on your payment and may even earn rewards. Paying your taxes with a bank account transfer is completely free but credit card payments aren’t free. Here you will be charged a fee that varies by the payment processor you choose. But before paying taxes via credit card you must know the drawbacks as well as benefits of doing this. According to the IRS, in 2020, the average taxpayer paid $15,322 in income tax. you still might owe some money when tax time rolls around, as many employees have taxes withheld from their pay-check so they don’t have to pay it all in one lump sum. When it comes to organizing their tax payments Self-employed people, business owners, and freelancers have to be more self-sufficient.

Here in this article, you will get complete detailed informations about how you can pay taxes with a credit card and the benefits and drawbacks of using a credit card to pay taxes.

How much it costs to pay federal taxes via Credit Card:

First you have to keep it in mind that it isn’t free to pay taxes with a credit card. But you don’t have to pay any additional costs to paying your taxes using a bank account transfer. So, you have to pay a fee that amounts to a percentage of your tax payment. How much you will be charged will depend upon the payment processor you choose. Here below we have given details about the breakdown for the fees. Now you have to determine whether or not footing these extra fees is worth the convenience of using a credit card to pay taxes.

• PayUSAtax.com: 1.96% fee, minimum $2.69
• Pay1040.com: 1.87% fee, minimum $2.50
• ACI Payments, Inc.: 1.98% fee, minimum $2.50

The fees may be higher, if you decide to pay with an integrated IRS e-file and e-pay service provider:

• PAY1040.com/Special Offers/TurboTax: 2.49%, minimum $3.95
• Fileonline.1040.com: 2.35% fee, minimum $3.95
• FileYourTaxes.com: 3.93% fee, minimum $2.

Benefits of paying federal taxes via credit card:

Here below we have provided the benefits of paying federal taxes via credit card.

• Credit card rewards can be earned:

You can earn cash back, points or miles using a reward credit card for paying your taxes. For instance, you’ll incur a 1.87% fee if you owe $1,000 in taxes and choose to pay it with a credit card using the cheapest payment processor Pay1040.com. you will need a card with at least 1.87% rewards return for earning extra reward which rounds up to a 2% or 2X rewards card.

But besides all of this you have to keep in mind that the processing fee associated with using a credit card because you may see that the rewards you are earning aren’t making up for the cost of paying in this way.

• Meet spending requirements to get welcome bonus offer:

After opening a new credit card with a welcome bonus the taxes charged to your card can help you meet the spending requirement. You need to do the math to see if the bonus reaps a higher reward than the processing fee before using credit card to pay your taxes.

You may see if you spend $5,000 on purchases in the first five months of having the account then the card offers you 60,000 bonus points. And you will find that the perks you receive in this way are worth paying the credit card processing fee.

• Get benefit from social financing:

You can consider paying with a credit card to benefit from an intro 0% APR period if you’re looking to buy some time on tax payments. You will also find some cards which offer more than a year of special financing on the purchases that you make.

• Know about the convenience factors:

The most compelling reason to use a credit card for this purpose is that it’s convenient. Now you can quickly complete your online payment via credit card and receive instant confirmation that your payment went through. But still, you have to pay the fees. So, it is only slightly more convenient than using an online bank transfer.

 

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Drawbacks of paying federal taxes via credit card:

Here we have provided complete details about the drawbacks of using credit card for paying your federal taxes, so it will be easy for you to determine whether to use credit card for payment or not.

• High Credit utilization rate:

Your credit score will be negatively impacted while you pay your taxes via credit card because it will cause your credit utilization rate to spike. This rate explains the total percentage of your credit that you use. For calculating your credit utilization rate, you have to take your total credit card balance and divide it by the amount of credit you have available. Then the left-over percentage is your credit utilization rate. It is ideal to keep this rate as low as possible because the higher rate can lower your credit score. Then it will become more difficult to borrow money or leave you with less favourable terms when it comes to taking out a loan.

• Pay processing fees:

You will need to pay a processing fee when paying your taxes via credit card from the payment processor. The fee will varies depending on the processors and according to the IRS, is currently 1.87% to 3.93% of the payment with a $2.50 to $3.95 minimum. When you pay with a credit card that offers a lower percentage of rewards than the fee then it will not make sense to use a credit card for payment.

• Limitations on the eligible taxes:

Here you will also find some limitations to which taxes are eligible for credit card payments. You may find it’s easier to pay all of your taxes using an online bank transfer according to your particular financial situation.

• Pay interest charges on unpaid balances:

You must pay your credit card balance in full by the payment due date otherwise when you pay your taxes with a credit card interest charged will be incurred. So, you have to pay your balance in full by the due date to avoid interest charges. You will need to pay high interest charges if you only make the minimum payment and carry a balance month-to-month. And you won’t be able to take advantage of any payment plans offered by the IRS when paying with a credit card.