What happens if you pay your taxes with a credit card

When you can’t pay your tax bill in full, reaching for a credit card could be an easy choice. And if you can pay your bill in full, using a rewards card could be a tempting option to maximize cash back points. But it may not be as straightforward as it seems, as both the IRS and the credit card company will tack on fees for the convenience.

Here’s what you need to know about using a credit card to pay your tax bill.

You’ll pay a fee just for entering your card info for payment

When you pay for anything with a credit card, the recipient of the payment has to cover the processing fees for use, also known as a swipe fee—that’s why some retailers and restaurants often have a credit card minimum for payment, as they don’t want to incur the financial hit for a low-value sale. The IRS, however, is not in the business of paying any fees for your convenience, so it will charge you for the privilege of using a credit card to pay your taxes. The fee the IRS requires you pay will depend on the payment processor that the card issuer uses. In most cases, this hovers just under 2% with a minimum swipe fee of around $2.50. That means if you own $10,000 and put it all on your card, you’ll pay around $200 just for the swipe fee.

You’re better off using a no- or low-interest card

Reaching for a card with a 0% annual percentage rate (APR) for new purchases will help to lower your costs because you’ll be charged no interest on your card balance for the length of the 0% offer. This is a smart way to potentially eliminate your credit card interest charges when you are charging a hefty tax bill—assuming you can pay off the credit card within a year of the IRS payment.

“If you find a new purchase [credit card] at 0%, that’s the one you want to use to pay your tax bill,” says Lynnette Khalfani-Cox, chief executive officer and co-founder of AskTheMoneyCoach.com, a free, financial advice site.

For example, the Chase Freedom Flex℠ which we named the best Credit Card with no annual fee, card has a 0% APR for 15 months on both purchases and balance transfers. That means you could sign up for a card in April, 2022, use it to pay your tax bill, and have until July, 2023 to pay it off without any interest. The ongoing variable APR is 19.24% - 27.99%.

Don’t qualify for 0%? Reach for the card in your wallet with the lowest APR. That way, you’ll minimize how much you’ll have to pay in interest as you make your credit card payments.

It’s best to pay off your balance ASAP

As with any credit card, paying down the balance is key. And the same goes for a credit card charged to the brim with a tax bill. How long should you take to pay it off? “A year is the most I would want to see someone put their tax bill on a credit card,” says Khalfani-Cox. “Three to six months is much better.”

That means, as much as you’re able, you should try to pay more than the minimum payment every month, which will chip away at the total you own much faster and reduce the total interest you’ll pay (assuming you don’t use a 0% APR card).

Charging a large tax bill can impact your credit score

Need another incentive to quickly pay down the credit card that covered your taxes? Adding a hefty credit card charge will lower your credit score and it will be reported on your credit report. First, because you’ll have a larger balance to pay down and, second, because any new large charge will take up a greater portion of your total available credit.

“If your tax bill is equal to more than 30% of your assigned credit limit, [ideally] you’ll want to pay off the balance before the next billing period or expect your credit score to drop,” says Bruce McClary, senior vice president of membership and communications at National Foundation for Credit Counseling, a nonprofit financial counseling organization.

By causing your credit score to dip, this could mean you may not qualify for other types of credit—such as a car loan or mortgage—until you pay down the balance and your credit score can rise back up to reflect that.

You may not earn rewards on your tax payment

You might think that using a credit card to pay—even if you have the cash on hand—might be worthwhile if your credit card offers reward points. However, unless those points earned equal more than 2% of the purchase, you won’t even break even on the swipe fee.

Further, if you’re using a card because you don’t have the cash on hand, you might think the rewards points might at least offset the fees and interest a little, but McClary says you should think again.

“Not all reward point programs are the same, and some usage categories may limit or restrict the accrual of points,” he says. “It’s always good to read the fine print and ask questions before counting on points.”

For example, Citi Double Cash and Capital One Quicksilver Cash Rewards Credit Card credit cards both can be used to pay taxes and earn rewards. But the Blue Cash Preferred® Card from American Express does not offer rewards for tax payments.

Should you use a credit card to pay your taxes?

In most cases, it’s just not the best idea.

Just because you have a credit card in your wallet doesn’t mean you should use it for taxes. “If you have a low credit limit or high interest rates, paying with a credit card may not be best for you,” says McClary.

The IRS offers better options for anyone, in the forms of tax liability payment plans. By opting for a payment plan, you agree to pay off your debt monthly plus interest, either over a short term of up to 180 days or a long term of up to 6 years. Even with the interest and any penalty fees, this is likely to cost you a lot less over a long term than carrying a credit card balance.

Please note: The offers mentioned above are subject to change at any time and some may no longer be available.

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See rates and fees for the Blue Cash Everyday Card from American Express.

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