You Can Make Money by Paying Your Taxes With a Credit Card — Here’s How

For Americans who owe taxes, there are only a couple of ways to pay your bill to the government. You can pay using direct withdrawal from your bank account, cash in-person at participating retailers, digital wallet, payment plans or with a debit and/or credit card. However, the last option has fees associated with it.

Paying taxes with a debit card is a modest $2.20 fee, and paying with a credit card is a 1.87% fee of your total tax bill.

While that can be large or small depending on your tax bill, there is enough wiggle room to make paying taxes with a credit card worth it. Here is how the numbers worked out for me.

My 2020 tax bill was $4,200. Because I was going through a divorce at the time, I simply didn’t have the money to pay that bill all at once. So I decided to peek into 0% intro APR credit cards to see how I could finance the bill.

Once I ran the numbers, I decided to go for it. I applied for the Capital One Savor Rewards Card and was approved immediately. When I received the card, I used it to pay the entire tax bill. Below is how the charges appeared on my credit card statement:

As you start to pay your taxes with a credit card, you might want to consider these factors — such as your credit score, available servicers and rewards — before you do.

It’s worth noting that holding a balance on a 0% APR credit card can negatively impact your credit score, especially if the card has a lower credit limit.

For example, my Capital One SavorOne card has a $10,000 credit line, meaning that I used roughly 40% of my available credit to pay my taxes. I noticed a slight decrease in my credit score, but nothing to be overly concerned over. It is generally recommended to keep your credit utilization under 30%.

Additionally, a large increase in credit usage could send your credit score down a few points.

So if you’re approved for a new card or have a card in mind to use, be sure that the credit line is larger than your tax bill. It isn’t advised to max out your credit card, and if you need more credit, give your issuer a call to see if they can extend your credit limit.

When you receive your tax bill and decide to pay with a debit or credit card, you can choose between three different servicers: ACI Payments, Pay1040 or payUSAtax. Each of these is approved by the IRS and charges different fees.

Pay1040 currently offers the lowest fee for paying taxes with a credit card at 1.87%.

In my case, I was chasing the sign-up bonus to help offset the fee of paying taxes with a credit card. But for someone who wants to earn more rewards, or meet a high spending requirement for a welcome offer, incurring a small fee may be worth it.

However, be sure to run the numbers on the rewards you earn versus the fee you incur. For example, if you enjoy earning American Express Membership Rewards points to redeem for first-class flights, the small fee may be worth it — especially if you value Amex rewards over 1.8 cents per point.

Tax season is right around the corner, and it’s looking to be a hairy tax season. As the IRS struggles with employees being out sick due to Covid-19 and other logistical issues, there is more reason to handle your payments electronically rather than through snail mail.

And if you need some flexibility or simply want to earn rewards for paying your taxes, consider paying your taxes using a credit card this tax season.