Finding out that you owe a significant amount of money in taxes can be surprising news to digest. Tax season doesn’t have to be stressful as long as you have a plan in place for how you’re going to file your taxes and pay your tax bill. Money can be tight, so you might be wondering if it makes sense to use a credit card to pay your taxes. Read on to find out if this is a good choice for you.
You can pay your taxes with a credit card
Yes, it is possible to pay your federal taxes with a credit card. But should you? Be aware of the additional fees you will have to pay when using your credit card to pay your taxes. Knowing how much you’ll pay up front can help you make a more informed decision.
No matter how you use your credit card to pay your taxes, you will be charged a fee. If you use one of the IRS-recommended third-party payment processors, you will be charged a fee. If you file your taxes through an online tax preparation company and make a credit card payment directly through them, you will also be charged a fee.
For either of the above situations, the total fee you will pay is calculated as a percentage of the amount paid. There is also usually a minimum charge in place. The fees vary depending on the payment processor or tax preparation company you use. Make sure you check these costs out before using a credit card to pay your taxes to avoid unforeseen charges.
There is no workaround to avoid paying credit card fees when paying your taxes with a credit card. You will need to decide if the fees for using your card are worth it. The best way to avoid paying extra fees is to make a payment with funds directly from your bank account.
When it may make sense to pay taxes with a credit card
It may be a good idea to pay your taxes with a credit card. Here are some examples.
You are trying to achieve minimum spending
If you’ve recently opened a top-rated credit card that requires minimal spending to earn bonus points, it may be a good idea to use your credit card to pay your taxes. That being said, it is essential to determine whether the bonus points outweigh the fees charged. If you have to pay hundreds of dollars in fees, this is probably not a good plan.
You want to earn more points or rewards
Depending on the credit card you have and the earning potential it offers, you may decide to pay your taxes with a rewards credit card to earn additional points or rewards. Just make sure the math makes sense. If you don’t have a very high tax bill, this can be a good option.
You do not have the funds available in your bank account
Hard times happen, and even in those situations Uncle Sam still wants his money. If you don’t have the money you owe in your bank account, you may decide to charge your card. Just find a plan to pay off those credit card charges as soon as possible to avoid paying credit card interest on top of the credit card processing fee. It’s never a good idea to pay interest charges if you can avoid it.
The bottom line
Before you rush to pay your taxes with a credit card, be sure to consider all of your payment options. While it may be a good idea to pay credit card fees for some taxpayers, it may not be a good idea for others. Always take a look at the pros and cons to make a more informed choice and have a plan in place to pay off your credit card statement balance.