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Should You Pay Taxes With a Credit Card?

Facing a looming tax bill can be very stressful, especially if you don’t have the cash on hand to pay it in full by the deadline date. When this happens, you may be tempted to use any means available to pay your tax balance, including plastic. But, should you pay your taxes with a credit card? The answer is more complicated than a simple “yes” or “no.” There are many things to consider before you decide to move your debt from the IRS to your credit account.

When Paying Taxes With a Credit Card Might Make Sense

Using a credit card to pay your income taxes may sound like a slippery slope, but there are some instances where it may make sense.

  • Short-Term Loan. If you’re unable to pay your taxes on time but will have the money within a few weeks, it may make sense to place your tax debt on your credit card. As long as you can pay the balance off before interest is charged to your account, it’s basically like taking out a short-term loan.
  • Introductory Rate Offer. Do you have a 0% introductory offer from a new credit card company? This may be the right time to take them up on it, especially if you have 12 or more months to pay off your balance interest-free.
  • Sign-Up Bonus. Some credit cards offer bonus reward points for opening a new account. Depending on what purchases qualify and how many points are earned, this could be a good reason to use your credit card to pay off your tax balance.

Be Sure to Consider All The Fees!

Before using your credit card, however, it’s important to do the math. There could be various fees involved when choosing this payment method, including payment processing fees, transfer fees, and interest.

Payment Processing Fees

If you decide to pay by plastic, you’ll be charged a fee by an authorized third-party processor. This currently ranges between 1.87% and 1.98%, or a minimum fee of at least $2.50 or more. For a $10,000 tax balance, the processing fee is between $187 and $198. If you have a rewards card that gives you at least 2% cash back, it can help offset this cost. Just be sure to check with your credit card company and verify that charging your taxes qualifies for points.

Transfer & Interest Fees

Depending on the credit card you select and its terms, you may also incur a balance transfer fee and/or interest. Balance transfer fees typically range between 2% and 5% of the amount charged to the card, especially when using a convenience check. If you’re not using a 0% fee card, you will also pay interest fees on any balance not paid within 30 days. According to the Federal Reserve, the average credit card interest rate is around 16.65% (2nd quarter of 2022). That can add quite a bit to your balance if it’s not paid off in a short amount of time.

Other Options For Paying Your Taxes

Generally, we do not recommend using a credit card to pay your taxes unless it is your last resort. The processing and interest fees can add up quickly. You also risk lowering your credit score if you fail to make payments on time. 

Of course, paying credit card fees is better than ignoring your tax debt. If you fail to respond to repeated requests for payment, the IRS will send your account to collections. This means that you could find yourself facing wage garnishment, a tax lien against your property, or seizure of other assets.  If you don’t qualify for a 0% interest offer or are unable to pay off the balance in 30 days, however, you may want to consider other repayment options. The IRS offers both short- and long-term payment plans. You may also qualify for a payment extension due to undue hardship.

To learn more, call Tax Defense Network at 855-476-6920 for a free consultation. Our tax specialists can help you get into an affordable IRS installment agreement or see if you qualify for other tax relief.