Can You Pay Income Taxes With a Credit Card
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Your accountant probably doesn't want you to pay your taxes with a credit carte du jour.
"I have never advised a client to pay with a credit card," says Eric Pierre, CPA and owner of Pierre Bookkeeping, a firm with locations in California and Texas. "I generally don't think it's a good idea."
But in that location are special cases in which using a credit card for your taxation bill may be a necessary terminal resort or help y'all salve with bonus rewards. Here's what yous need to know about paying your taxes with a credit card, the consequences yous could confront in doing so, and how to determine whether it might be worth information technology for you lot this taxation flavor.
Can Y'all Pay Taxes with a Credit Menu?
The IRS provides a few third-party payment processing options for taxpayers who want to utilise credit cards. Nether each of these processors, you will pay additional fees to use a credit card for your revenue enhancement payment.
| PayUSATax | Pay1040 | OfficialPayments | |
|---|---|---|---|
| Fees | 1.96% ($2.69 minimum) | 1.87% ($2.59 minimum) | ane.99% ($2.50 minimum) |
These fees are for payments fabricated directly through these payment companies, which you can find on the IRS' website. You tin can likewise pay your taxes with a credit card if you utilise a taxation grooming service with eastward-file and e-pay, such as TurboTax, though different — and mostly higher — fees will utilise.
The IRS does cap the number of card payments allowed. This is something to consider if you plan to make multiple payments toward your residue over tax season rather than ane payment in full, or if you make estimated quarterly payments. The maximums vary based on the year and the tax forms you lot file, simply more often than not Form 1040 payments are limited to 2 per year and Form 1040-ES estimated taxes are limited to two card payments per quarter. Y'all can find the total rundown from the IRS here.
Unlike Tax Payment Methods
- DirectPay: This is the most convenient — and gratis — payment method the IRS offers. Connect your checking or savings account, and pay your residuum by electronic funds transfer. There'due south no fee and y'all can schedule your payments in advance.
- Credit carte: Payment by credit card is convenient, but you'll pay a fee ranging betwixt i.87% and one.99% of your amount owed. That may seem small, but for large balances information technology can quickly add together up. If y'all choose this method, make sure you pay your residual in full when your argument is due, to avoid accruing interest on your card.
- Debit card: Like credit cards, debit card tax payments incur fees, though these fees are flat, ranging from $two.00 to $3.95. Y'all likely won't earn any rewards, but you besides forgo any risk of carrying over credit carte debt by using your debit card. Before choosing this method, ensure your checking account balance is more than your payment so yous don't run a risk overdrafting.
- Check: Y'all can always ship your tax payment to the IRS with a check in the mail for no toll beyond postage. At that place'due south nonetheless some risk with this method though; your check could be lost in commitment or processing. Experts we spoke to recommend sending your cheque via certified mail service, which can stand as proof your payment was sent even if it's lost.
Pros and Cons of Paying Taxes with a Credit Card
Pros
-
Earn rewards
-
Encounter spending threshold to score a welcome bonus
-
Enjoy a few extra weeks after making tax payment before credit menu payment is due
Cons
-
Fees increment your corporeality owed (and may offset rewards earned)
-
Risk of loftier-interest debt balances if you don't pay it off within the month
-
A large tax payment could push your balance close to your credit limit and raise credit utilization, negatively affecting your credit score
Should You Pay Taxes with a Credit Carte du jour?
It is possible to pay your taxes owed with plastic, merely does that mean you should? Here are a few things to consider earlier you decide:
Debt Risks
"Are you going to be disciplined to pay that tax bill down?" asks Ryan Losi, CPA and executive vice president at PIASCIK, an accounting house based in Virginia. "If it's a $200 tax pecker, that's one thing. Merely if your tax bill is $five,000 or $10,000 and you put it on a credit card, y'all've got to pay that off, and you may finish upward paying more interest on the card than y'all pay to the federal government."
With today'due south average credit card APRs higher up 15% (and many reaching upwards of xx%), charging a large tax payment to your carte without a firm payoff program can pb to exponentially more than coin owed in involvement over time.
If y'all already conduct a debt balance which your taxes volition but add to, using your credit card should only be a last resort — and even then, you're probably meliorate off working with the IRS to found a payment plan or file an extension. These plans still deport involvement and fees, but they're much less costly than credit carte interest you'll accrue over the same payoff period.
Alternative: IRS Payment Program
If you're facing a period of financial hardship and are unable to pay what you owe in total past Revenue enhancement Mean solar day, the IRS offers payment plan options to make payments more manageable. Earlier resorting to charging your balance to a high-interest credit bill of fare, apply for one of these showtime.
Pro Tip
If you're looking to charge your taxes owed considering yous don't have the money to pay in full, use for a payment program or extension with the IRS before you risk putting the residue on a loftier-involvement credit card.
These payment plans work similarly to loans: you'll pay your taxes owed over fourth dimension (upward to 60 months) through monthly installments. But they're not gratuitous. At that place's a ane-time setup fee, as well as accrued penalties and interest until your balance is paid in total (y'all tin notice more information nearly specific costs on this IRS webpage).
"I think they're fantastic plans," Losi says. "Information technology'south amend to opt into an installment program with the IRS and stretch information technology out over 60 months at a 9% rate every bit opposed to paying it all upfront then committing yourself to a credit card interest rate somewhere north of fifteen%."
Credit Affect
You lot should too exist wary of potential impairment charging your taxes to a credit card could have on your credit score. Credit utilization ratio is a major cistron in your score calculation, and if you charge a large corporeality in taxes, information technology could have upwardly a pregnant portion of your available credit, resulting in a drop in your credit score.
If you're planning to apply for a loan in the near future, refinance your mortgage, or any other activeness that could be affected by a temporary credit hit, you should take that into consideration.
If y'all need to conduct that tax balance month-to-month, paying information technology off over time, your credit score could endure longer-term harm. If you're unable to get your utilization dorsum to a salubrious ratio quickly, that dip could plough into a long-term trend. And using up much of your available credit limit leaves y'all with niggling wiggle room if you find yourself in need of bachelor credit in the futurity.
Alternative: Other Payment Options
Y'all might not earn rewards, only standard payment options are only every bit convenient as using a carte if you have the cash on hand to pay your tax bill upfront.
"We usually recommend using DirectPay or a cheque through certified mail," Pierre says. "Those are both free."
Losi agrees DirectPay is the most convenient pick for many of his clients, and doesn't discount a standard check sent via mail either; just make sure your check is postmarked by Revenue enhancement Mean solar day. Fifty-fifty if you put off your payment until the deadline, these are both viable options.
Rewards Gains vs. Fee Losses
The risks can be high, but if you plan ahead and prepare, there tin be value to using your card to pay taxes. Commencement by making sure yous will pay downward any residual earlier interest accrues. And then, ensure that you can earn more in rewards than y'all'll pay in processing fees.
Corritta Lewis, a travel blogger who shares her experiences at It'southward a Family unit Thing, pays taxes with credit cards annually. Lewis plans ahead to target welcome bonuses and earn benefits that she says outweigh the additional fees that come with paying taxes this manner.
"This allows me to pay my taxes, run into the minimum spend requirement, and earn credit card points," Lewis, 31, says. She warns that this isn't the path for anybody, and it's only worth it because she pays her tax balance off by the end of the month. Lewis sets bated small amounts each month throughout the year to contribute toward the balance, which she pays off in total earlier accruing interest.
Using taxation payments to run across the minimum spend for a sign-up bonus, like Lewis, is ane way to curtail fees. You may besides have success using a card that'south already in your wallet.
Each of the IRS' payment processors charges under 2%, and so if you have a flat cash dorsum card that earns 2% or more on every buy, yous can come out on elevation using your card for taxes.
That'south the strategy Janice Lintz, a freelance travel writer who says she has leveraged over 2.7 million points and miles to travel to more than 139 U.North. countries, uses to pay her federal income taxes.
Lintz, 57, began implementing this strategy the yr she sold her domicile and had to pay capital gains tax. She said she used a card that's no longer available which earned 3% cash back on every purchase. Even after bookkeeping for payment processing fees, she was able to net 1.thirteen% greenbacks back on her full tax payment.
Since so, Lintz says she'south used both the Citi® Double Greenbacks Card* and Capital letter Ane Venture Rewards Credit Carte du jour* on taxation payments. Citi Double Cash Card earns two% cash back on every purchase (one% as you spend, one% as you pay it off), while Upper-case letter One Venture earns 2X travel miles on every purchase. If you lot submit your payment through Pay1040 for a 1.87% charge, that's a net 0.13% earned on your tax payment.
Lesser Line
While you lot can pay your taxes with a credit carte, information technology may not be the most cost-effective option or most beneficial for your long-term financial health, though there are exceptions for responsible credit users looking to earn extra rewards.
"Credit cards and using credit cards to earn rewards only works if you pay your credit cards in total and on time," Lintz says. "That'southward critical. Some people tin handle information technology and some people can't. You really practice need to know who you are before you embark, because the goal is not to become yourself farther in a pigsty."
E'er compare the fees and interest you lot'll incur against whatever benefits you may get before making your payment. And if you're charging your tax payment because you're unable to pay cash, expect into less-costly payment plans through the IRS before resorting to high-involvement credit menu debt.
*All information almost the Citi Double Greenbacks Card and the Uppercase Ane Venture Rewards Credit Card has been collected independently by NextAdvisor and has not been reviewed by the issuer.
Source: https://time.com/nextadvisor/credit-cards/pay-taxes-with-credit-card/
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