You Could Earn Points by Paying Your Taxes With a Credit Card, but It Could Cost You

The time left to pay your taxes is winding down. 
You may be considering a few options to pay your tax bill -- including using your rewards credit card to earn cash back or miles. That may be a smart move if you're trying to earn a welcome bonus or want to rack up miles for a future trip. 

As a business owner and credit card expert, I've paid my taxes with a credit card a few times, and it's not all about the rewards potential. There are some risks and additional costs to account for when determining if the rewards are really worth it. 

There are processing fees to consider and the possibility of having to pay interest if you're unable to pay your credit card balance in full by your statement due date. And your credit score may take a hit. Here's when I do and don't recommend using a credit card to pay your tax bill.

The cost of paying your taxes with a credit card

The IRS will let you pay your tax bill with a credit card through a third-party payment processor. You can choose either Pay1040 or ACI Payments.

Both charge a fee based on a percentage of your payment. You can expect to pay between 1.75% and 2.95% depending on the payment processor, and whether you're using a personal, business or corporate card. There's no cost for making payments directly from your bank account. 

When you should pay your taxes with a credit card

Despite the additional fee when you pay your taxes with a credit card, there are a few instances when it makes sense to do so. 

💳 If you can earn a good welcome bonus

No one loves paying a big tax bill but if paying your taxes with your credit card will allow you to earn a valuable welcome bonus, paying the small processing fees can be well worth it.

Many of the best new account credit card welcome bonuses can award 100,000 or even 150,000 points or miles, which can be worth thousands of dollars in travel. To receive the most valuable new account bonus offers, you typically must spend a large amount on your card within a few months.

Here's an example: Say your tax bill is $4,200 with a 1.75% processing fee. That brings the total bill to $4,273.50. If you're looking to earn a Chase Sapphire Preferred welcome bonus, you'll need to spend $4,000 within the first three months. Because your tax bill is more than the bonus requirement, you'll earn 60,000 points. These points translate to up to $750 when redeemed for travel through the Chase Ultimate Rewards portal at 1.25%. If you redeem for a statement credit at one cent per point, you'll earn $600 -- which could knock that amount off of your balance owed. 

Paying your taxes with this card could be worthwhile but only if you can pay off your credit card in full by the due date. If not, the interest you begin accruing on such a high balance will quickly offset the rewards you earned. 

💳 If you have a 0% APR introductory financing offer

Many rewards credit cards offer a 0% introductory annual percentage rates for new purchases, balance transfers or both for a period of time. By law, these offers must last at least six months from account opening but the most competitive offers are as long as 21 months. 

If you don't have enough money to cover your tax bill and you planned to put the money on a credit card, choosing a 0% APR card could save you more than you'd pay in interest.

Before you take this route, compare the IRS's payment options. You might save more money by enrolling in one of those. Plus, choosing an IRS payment plan could save you from accruing debt.

Watch out: Do not consider this option if you have any doubt that you can repay your entire balance before your introductory period ends. If you can't, you'll be subject to the card's regular APR, which could be well over 20%.

💳 When you need a little extra time

The smartest way to use a credit card is to avoid interest by paying your entire statement balance in full and on time. When you charge purchases, you'll have 21 or 25 days after your statement period closes to pay your bill in full to avoid interest. So if you pay your taxes with your credit card at the beginning of your 30-day statement period and have a 25-day grace period, then you could get up to 55 days to pay your balance interest-free. If you earn irregular income or are expecting a big payment from a client, this could come in handy. Occasionally, this additional buffer helps me if I don't have sufficient cash on hand but need to pay my taxes. 

If you need more time beyond the statement period, compare your credit card's installment plan options to the IRS payment plans to find the most affordable plan. 

When it doesn't make sense to pay your taxes with a credit card

Despite rewards and having more time when paying with the right credit card, there are times when it doesn't make sense and it's best to pay via your bank account or a mailed check. I've done both before. Here are a few examples when you may choose one of those options instead. 

⛔️ When the cost outweighs the rewards

If I don't have a credit card that offers substantially more value in rewards than the processing fee, there's no point in incurring the fee. At these times, it's better for me to hang on to my cash rather than paying fees to earn additional points. 

Using the same example above, if I'm paying $4,273.50 without earning a welcome bonus, but I'm earning 1x points on this purchase with my Chase Sapphire Preferred, I'd only earn 4,273 points. And when booking travel with Chase that's only $53, which isn't worthwhile because the processing fee is $73.50. 

⛔️ Interest would accrue before your balance is paid off

More than half (53%) of all American credit card users will carry a balance on their cards during all or some of the year, according to a recent Bankrate survey. With average credit card interest rates above 20%, incurring interest charges on your tax bill can be very expensive. If you have to finance your tax bill, it's likely less expensive to do so with an IRS payment plan or personal loan.  

⛔️ When you're trying to keep your credit score as high as possible

If you're about to apply for a mortgage or auto loan, do not put your tax bill on your credit card. A new high balance on your credit card could flag you as a risky borrower. To avoid any hiccups in the application process, it's best to pay from your bank account or consider another payment plan. 

Best credit cards for paying your taxes

Here are a few cards I recommend considering for paying your tax bill: 

Capital One Venture and Venture X. These cards offer double miles on purchases. Capital One Miles are worth one cent each as statement credits applied toward travel purchases. But these miles can be worth even more when transferred to airline miles or hotel points and redeemed for the most valuable flights or hotel stays.

Citi Double Cash. This card offers 1% cash back at the time of purchase and another 1% cash back when you pay off your purchases, for up to 2% cash back. If you also have the Citi Strata Premier, you can combine your ThankYou Points and redeem them for airline miles or hotel points for more value. But even as cash back, you're coming out slightly ahead when you earn 2% cash back, while paying as little as 1.75% in fees. 

Discover it Miles. Because the Discover Card offers you a cash-back match during your account's first year, it can be worthwhile to pay your taxes with this card if you just got it. You'll earn 1.5 miles per dollar spent and their miles can be redeemed for 1% cash back. When you receive the cash-back match at the end of your first year, you'll essentially earn 3% cash back, which is well beyond the cost of the processing fees.