CNN Underscored reviews financial products such as credit cards and bank accounts based on their overall value, but does not review all financial companies or all available financial offers. We may receive compensation for sending traffic to partner sites, such as CreditCards.com, and this compensation may impact how and where links appear on this site. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.
It’s (finally) tax time! Even though the Internal Revenue Service (IRS) delayed this year’s tax deadline to May 17, that revised due date for 2021 has now arrived. And given the financial havoc that the coronavirus pandemic wrought, you might be wondering if it makes sense to pay your taxes with a credit card this year.
Paying your taxes with a credit card may sound like a dangerous idea, but there are times when it can make sense. For example, let’s say you’re in a situation where you expect to have the money to pay your taxes but not until a few weeks after the IRS deadline. You can use a credit card as a short-term loan to cover what you owe, then pay your credit card bill when you actually get the cash.
You could also take advantage of a credit card with an introductory 0% interest rate in order to spread your tax payments out over months or even a full year. While the IRS itseslf offers payment plans, the agency will charge you interest for paying over time, which you can avoid by paying with a 0% interest credit card.
Another reason people pay their taxes with a credit card is to earn extra credit card rewards. There are fees involved in doing so, but if you can rack up enough rewards to make them worth more than the fee, you can still end up ahead, so long as you pay your credit card bill in its entirety by the due date to avoid racking up a lot of interest.
Regardless of why you might want to use a credit card to pay your taxes, if you’re going to take the plunge, it’s important that you know how to do it and which cards to use to make the effort worthwhile.
The best credit card to use when you pay your taxes depends a lot on what you hope to accomplish. Do you want to eke out a very small percentage in rewards, or do you hope to use your tax bill to earn a big bonus? Maybe you want to access an introductory 0% APR so you can pay off the balance over time. For each of these scenarios, here are our top picks for paying your taxes with a credit card:
Citi® Double Cash Card: Best for earning cash back
Chase Freedom Unlimited: Best introductory 0% APR offer
Chase Sapphire Preferred Card: Best sign-up bonus
Capital One® Venture® Rewards Credit Card: Best for flexible travel rewards
Hilton Honors American Express Surpass® Card: Best hotel spending bonus
The Blue Business® Plus Credit Card from American Express: Best for business taxes
Each of these cards can be a great choice to use for paying your taxes, but before we dive into the details of what makes each card a good option, let’s explore the process of paying your taxes with a credit card so you know how to do it.
The US government itself actually doesn’t accept credit cards for tax payments. However, it has authorized three different companies to process federal tax payments made with plastic on its behalf. Each of these companies charges a fee as a percentage of your tax payment when you pay with a credit card, so it’s important to keep in mind this cost when using your card to pay your tax bill.
Fees vary depending on which company you use and whether you’re paying the IRS with a credit card or a debit card. Here’s a summary of the companies who accept credit cards for federal tax payments, and the fees each one charges as of this writing:
PayUSAtax Pay1040 ACI Payments, Inc. Website payusatax.com pay1040.com fed.acipayonline.com Credit card fees 1.96% (minimum fee of $2.69) 1.99% (minimum fee of $2.58) 1.99% (minimum fee of $2.50) Debit card fees $2.55 $2.58* $2.00 or $3.95 for tax payments over $1,000 * Consumer and personal debit cards only. The fee for all other debit cards is 1.99% ($2.58 minimum). In order to pay your taxes with a credit card, you’ll need to go to the website of the company you want to use and make the payment there instead of with the IRS. You’ll have to provide all your basic information to pay this way, such as your name, address, date of birth, contact info and taxpayer identification number (which for individuals is usually your social security number).
Pro tip: Many states also let you pay state taxes with a credit card, so make sure to check for this option based on where you live. Don’t forget to compare the fees at multiple companies (if available) for paying state taxes with a credit card, which are often similar to the fees charged to pay your federal taxes with plastic.
As you can see from the chart, the minimum percentage you’ll have to fork over to pay your federal taxes with a credit card is 1.96%. This is a huge deterrent for rewards enthusiasts since many cash back credit cards offer less than 1.96% in rewards, meaning you’d be paying more in fees by using a credit card than you’d get back in rewards.
But with that being said, there are a few select credit cards that offer a higher earning rate or other incentives that can make using a card worth the cost. Let’s take a look at the best options.
The Citi Double Cash Card can make sense if you have a large tax bill and you want to end up slightly ahead in rewards. This card earns 2% back for every dollar you spend — 1% when you make a purchase and another 1% when you pay it off.
When you’ve earned at least $25 in cash back with the card, you can redeem it by getting a check in the mail, statement credits on your account or credits to a linked account. But if you have a Citi Premier℠ or Citi Prestige® Card, you can also convert your cash back to Citi ThankYou points, which can potentially increase the value of your rewards and make paying your taxes with the card an even better deal.
There’s no annual fee on the Citi Double Cash Card and you even get access to a 0% introductory APR on balance transfers for 18 months, after which you’ll pay a variable APR of 13.99% to 23.99%. That can be useful if you have existing debt on another credit card and need time to pay it off without racking up a lot of interest.
Related: Read CNN Underscored’s review of the Citi Double Cash Card.
If you want to earn credit card rewards on your taxes but your primary focus is to get some extra time to pay your taxes without incurring a lot of interest, the Chase Freedom Unlimited offers the best of both worlds.
This card earns 1.5% cash back on all purchases, including your tax bill. But to help you save on interest, the Chase Freedom Unlimited also gives new card holders an introductory 0% APR on purchases for the first 15 months after you open the account. Keep in mind that once the 15 months are up, the APR rises to a variable 14.99% to 23.74%, so it’s important to pay the balance in full before that.
The Chase Freedom Unlimited has no annual fee and also earns 5% back on travel purchases made through Chase and on Lyft rides (through March 2022), as well as 3% back on dining and drugstore purchases. And if you also have a Chase Sapphire Preferred or Chase Sapphire Reserve, you can convert your cash back into points that can be used for travel at even better redemption rates.
Related: Earn $200 in bonus cash back with this Chase Freedom Unlimited offer.
If you want your tax bill to translate into a huge sign-up bonus, the Chase Sapphire Preferred is almost certainly your best bet right now. This card is currently offering 80,000 bonus points when you spend $4,000 within three months of opening the account, plus up to $50 in statement credits for grocery purchases made in your first 12 months. That’s the highest bonus we’ve ever seen on this card.
Use your tax bill to earn a big sign-up bonus on the Chase Sapphire Preferred that you can redeem down the line for a beach vacation.
You’ll also earn 2 points for every dollar you spend on travel and dining purchases with the Chase Sapphire Preferred, 5 points per dollar on Lyft rides (through March 2022) and 1 point per dollar on all other purchases.
The card has a $95 annual fee, an
Here’s how to pay your taxes with a credit card
Go To The SourceRead More