How To Pay Taxes On A Credit Card And Earn Points

Paying your taxes with a credit card might sound unorthodox.

However, when done right, you can benefit big with rewards and points. Imagine getting a free flight or a big cash back bonus just for doing something you would have had to do anyway? 

It's possible, and we'll show you how.

In this article, we’ll outline when it makes sense to use your credit card to pay your taxes.

Paying Taxes On A Credit Card

The IRS has offered the option to pay your taxes with a credit card for many years now. This adds a layer of convenience that you don’t have with other options, such as writing a check. With a credit card payment, your tax bill is settled immediately, whereas with a check it can get lost in the mail, creating all sorts of problems.

You must use one of three payment processors approved by the IRS when paying by credit card. Fees range from 1.85% to 1.98% with minimum amounts ranging from $2.20 to $2.50.

Remember, you can do this with estimated taxes too! Check out our ultimate guide on estimated taxes.

Earning Points And Rewards By Paying Your Taxes

You may be wondering if the fees negate any reward you might earn. This will depend on the card you’re using. Some cash-back cards will pay more than the fees. But many cards will restrict cash-back rewards to certain purchases.

Also, rewards only make sense if you aren’t carrying a balance every month that accrues interest charges. If you pay off your balance every month, read on.

Also, trying to accumulate regular points usually isn’t going to be enough to overtake the processing fee. Paying by credit card works best when you can surpass a spending threshold to unlock big rewards that are far greater than what you would have earned through the credit card company’s regular points schedule.

This also makes sense if you're trying to earn a welcome bonus! Many cards have a welcome bonus of "spend X, earn Y". The spend amounts can be $4,000 or more in the first 60-90 days. Paying your tax bill can really help you make sure you complete the bonus.

Basic Rewards Arbitrage

Another easy example is using a cash-back rewards card, like the Fidelity 2% Cashback Credit Card. You'll earn 2% cash back on all purchases, and you'll pay a 1.85% processing fee.

Yes, that means you profit 0.15%... that's not much.

But if you're making a $10,000 payment on your tax bill, that's $15 back in your pocket - plus it also means you get to delay actually paying your tax bill another 20-50 days depending on when your billing cycle ends.

Note: This all assumes you're paying your credit card in full each month and not paying interest. As soon as you pay interest, the math doesn't work.

Other Reasons to Pay Your Taxes with a Credit Card

If you need a certain points level for a flight that you’d like to book now, paying your taxes can help you reach that goal. When compared to buying miles directly from the airline company, you may come out ahead.

If the tax payment deadline is only a few days away, paying with a credit card can ensure the payment reaches the IRS before the deadline.

You Can't Deduct The Processing Fees

Sadly, the new Trump Tax law eliminated the deduction for processing fees. So, you need to make sure that it's worth it. 

Can You Pay Taxes with a Debit Card?

Yes, you can. The fees are flat and range from $2.00 to $3.95 for payments over $1,000. However, you won’t be able to earn rewards by using a debit card. You still need to use a credit card to earn any rewards.

Paying your taxes by credit card ensures your payment reaches the IRS in a timely manner. You’ll also have an immediate receipt that can be printed out as proof of payment. Additionally, you’ll earn big rewards if you reach your credit card’s spending threshold. Keep in mind that this method only works if you are paying off your credit card balance every month.