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In this guide, we’ll cover everything you need to know about paying your federal taxes with a credit card, including the benefits, potential drawbacks, and and tips on how to avoid paying the higher credit card fee.
Paying federal taxes can feel like a burden, especially when a significant amount is owed. For some taxpayers, using a credit card is an appealing option to manage this expense. Let's go over some of the benefits!
Why consider paying federal taxes with a credit card?
Paying your federal taxes with a credit card can provide benefits, such as:
1. Earning rewards
Some credit cards offer cash back, points, or miles for payments, which can help offset the tax payment cost.
2. Meeting spending requirements
For new credit cards with bonuses for spending a certain amount, a tax payment could help you reach this threshold.
3. Spreading out payment
By paying your federal taxes with a credit card, or splitting the payments across multiple credit cards, you may gain additional time to pay your tax bill, especially if your card has a 0% APR promotion.
4. Simplifying payments
Credit cards offer a quick, easy way to make a one-time tax payment, especially if you're running out of time to file.
Also consider:
How to pay your federal taxes with a credit card: Step-by-Step Guide
Follow these steps to make a federal tax payment with a credit card:
1. Select an Approved Payment Processor
The IRS authorizes three payment processors:
Each processor charges a slightly different fee, so review them to see which works best for you, and check out our guide below covering how to avoid the higher credit card fees.
2. Gather Your Information
Before starting, have the following details ready:
- Your Social Security Number or Taxpayer Identification Number
- The type of tax payment (e.g., federal income tax, estimated taxes)
- Your payment amount
- Your credit card information
3. Visit the Payment Processor's Website
Go to the website of your chosen payment processor, select the type of tax payment you are making, and enter the necessary information.
4. Enter Payment Details
After selecting "credit card" as your payment method, enter your card information.
5. Confirm and Submit
Review all the details, including the processing fee and total amount charged. Submit your payment and keep a confirmation number for your records.
Understanding the fees – and how to avoid the high credit card fee
When paying federal taxes with a credit card, it’s important to understand the associated fees. IRS-approved payment processors like PayUSAtax, ACI Payments, Inc., and Pay1040 charge credit card processing fees that are based on a percentage of your payment. For example:
- PayUSAtax
— Credit Card fee: 1.82%
— Debit Card fee: $2.14
- ACI Payments, Inc.
— Credit Card fee: 1.98%
— Debit Card fee: $2.20
- Pay1040
— Credit Card fee: 1.87%
— Debit Card fee: $2.20
This fee structure means that if you owe the IRS $10,000 in federal taxes, a 1.82% credit card fee with PayUSAtax would cost $182, significantly more than the $2.14 debit card fee.
These fees can add up quickly, especially if you’re paying a large tax bill. Luckily, there’s a way to get around it:
Avoiding the Higher Credit Card Fees with Kasheesh
Kasheesh offers a way to sidestep the high credit card fees by allowing you to generate a virtual Mastercard debit card that lets you connect any credit card as the underlying payment source.
The tax payment processor registers the payment as a debit card payment, incurring that lower $2.20 fee, while Kasheesh automatically charges your credit card in the background.
Another major benefit of using Kasheesh is that you have the ability to split your tax payments across multiple cards, including credit, debit, and prepaid gift cards–charging whatever amount you want to each card. Kasheesh seamlessly combines your chosen cards into this digital Mastercard debit super card.
With Kasheesh, you can:
- Avoid the higher credit card fee: PayUSAtax will only charge you $2.14 instead of 1.82% of the total amount when you use Kasheesh, and ACI Payments and Pay1040 will only charge you $2.20.
- Use up to five cards per tax payment: Split your IRS payments between up to five cards, giving you the flexibility to blend credit and debit cards.
- Maximize rewards while lowering costs: Splitting large tax payments across several credit cards can help you more easily meet minimum spending requirements on several cards.
An important thing to note is that using Kasheesh normally comes with its own 2% processing fee, but this fee can be avoided by making your tax payment during one of their frequent promotional periods.
Kasheesh runs “no fee” or “reduced fee” promotions for a couple of weeks each month (details are posted on the company blog), which is the perfect timing to get your federal tax payments done while avoiding credit card fees.
Choosing the best credit card for tax payments
Consider these factors when selecting a credit card for your federal tax payments:
- Rewards: Look for cards that offer points, miles, or cash back on tax payments.
- Introductory APR: Some cards offer a 0% introductory APR, which can help you spread out payments interest-free.
- Annual Fees: Weigh whether the card’s annual fee is worth the rewards you’ll earn.
- Spending Bonuses: If you’re trying to hit a minimum spending requirement to earn a bonus, a tax payment could be an easy way to do it.
Recommended Cards for Tax Payments:
- Chase Freedom Unlimited: 0% APR for 15 months, 1.5% cash back on all purchases, $200-$300 sign up bonus, $0 annual fee.
- Chase Sapphire Preferred: Great for points and travel rewards.
- Citi Double Cash: Offers 2% cash back on every purchase.
Pros and Cons of Paying Taxes with a Credit Card
Pros:
- Earn Rewards: Turn your tax bill into points, miles, or cash back.
- Extended Payment Flexibility: Utilize a 0% APR period to pay off your tax bill over a longer period of time.
- Simplifies Payment: Convenient for those facing tight filing deadlines.
Cons:
- Processing Fees: Fees add to the total cost and could outweigh rewards earned, but as mentioned, you can avoid the fees by using Kasheesh.
- Interest Charges: If not paid in full, interest can accumulate on your balance.
- Credit Utilization Impact: Large payments can increase your credit utilization, temporarily affecting your credit score.
Also consider:
Alternatives to Credit Card Payments
If credit card fees are too high or you prefer other methods, consider these alternatives:
- Direct Bank Payment: Paying directly from a checking or savings account.
- IRS Installment Agreement: For those who need more time, an IRS payment plan may offer a manageable monthly payment with lower fees.
- Personal Loan: Some may find a personal loan offers a lower interest rate than their credit card.
Conclusion
Paying your federal taxes with a credit card can be a practical option if you’re looking to earn rewards, meet spending thresholds, or take advantage of a 0% APR period.
However, it’s important to weigh the fees and potential interest costs. For those who need alternative options, the IRS offers payment plans that can be tailored to fit different budgets. Whatever your choice, understanding the pros and cons will help you make the best decision for managing your tax obligations effectively.
Not using Kasheesh yet? Split your tax payment across multiple cards:
FAQ
Can I pay my federal taxes with a debit card?
Yes, you can. Debit card fees are generally lower than credit card fees (typically around $2 per transaction), but you can avoid credit card fees while using a credit card by utilizing Kasheesh.
Does the IRS charge extra fees for using a credit card?
No, the IRS doesn’t add additional fees, but the payment processor does.
Can I set up a recurring tax payment with a credit card?
Yes, you can make estimated tax payments quarterly using your credit card if needed.
Is paying taxes with a credit card safe?
Yes, using IRS-approved processors is secure. Be cautious of phishing scams—always use official IRS links or visit the IRS website to ensure security.
