I like to think that I know more about credit cards than the average person. After all, I have written and edited dozens of credit card reviews for Money Crashers. I tried more credit cards than I would admit.
So I was surprised and a little embarrassed to learn for the first time that the IRS allows the taxpayer to make federal tax payments with a credit card.
Almost all individual filers are eligible to pay their year-end tax by credit card. Freelancers and independent entrepreneurs who are responsible for quarterly estimated tax payments can also pay those with plastic. With some important reservations, especially with regard to withholding tax, business owners can pay taxes on credit.
In the following sections we view:
- The basis and method of paying taxes with a credit card
- The benefits of paying taxes with a credit card
- The disadvantages and limitations of paying taxes with a credit card
- The best credit cards that you can use for your tax payments
Paying taxes with a credit card: approved suppliers and costs
Paying your federal taxes with a credit card is not rocket science. This IRS primer outlines what you need to know about the process.
In almost every state that collects them, you can also pay income tax with a credit card. View this handy Mastercard cheat sheet for more information about individual and business income tax payment portals.
Pro Tip : Maybe it goes without saying, but I still say it: paying your taxes and paying your tax preparation costs are two different things. Tax payments go through an intermediary for processing payments to the IRS or state tax authorities. Tax return costs go to the accountant or software developer that you keep to prepare your taxes. Because taxpayers often make these different payments simultaneously, it is understandable when new ones confuse them.
IRS approved tax payment processing Suppliers
Taxpayers willing to submit paper returns and forms can choose from three payment processing providers approved by IRS:
- Pay1040.com : 1.87 % of the total tax paid or $ 2.59 minimum
- PayUSATax.com : 1, 98% of the total tax paid or $ 2.65 minimum
- OfficialPayments.com/fed : 1, 99% of the total tax paid or $ 2.50 minimum
Please note that paper vouchers are not required for quarterly estimated tax payments with a credit card. All three suppliers accept Visa, Mastercard and American Express credit cards, plus popular providers of mobile wallets.
Taxpayers who prefer to submit their returns electronically can choose from four IRS-approved processors for year-end bonuses, renewal payments and other types of tax payments accompanied by IRS forms:
- Pay1040.com : in collaboration with TurboTax; 2, 49% of the total tax paid or $ 3, 95 minimum
- 1040.com : 2, 35% of the total tax paid or $ 3, 95 minimum
- Official payments : in collaboration with TurboTax; 2, 49% of the total tax paid or $ 3, 95 minimum
- FileYourTaxes.com : 3, 93% of the total tax paid or $ 2.00 minimum
Consult the IRS frequency limit table per type of tax payment for more information about when and how often you can make different types of tax payments.
Paying taxes with your credit card: things to keep in mind
You want to note these items before planning a credit card tax payment:
- Payment Cancellation . Under normal circumstances you cannot cancel credit card payments. Contact the IRS for more details and possible backgates.
- Bonuses for new cards . Before you pay your tax, consider applying for a new credit card with an attractive sign-up bonus offer. The best sign-up bonus cards on the market, of which I have mentioned below, have bonuses worth $ 400, $ 500, even $ 1,000. The catch: you must reach a substantial spending threshold within a pre-set timeframe, usually three months after opening your account. Paying end-of-year or estimated taxes is a great way to speed up your progress to the threshold without spending on things you don’t really need.
- Federal Tax Liens . If you are subject to a federal tax result resulting from an unpaid tax liability, the retention right is not automatically released by tax payments made with a credit card. Talk to the IRS and a tax professional for guidance.
- Repayment plans . If you cannot afford to pay your full tax liability right away, but are not sure that paying with a credit card is the best choice, consider a repayment plan. The IRS offers immediate, short-term (120 days or less) and long-term (more than 120 days) oDr. Watsonine payment plans. Setup is free for short and short term plans, and payments are free if you choose to debit payments directly from a linked bank account. Long-term plans cost $ 31 to install with direct debit or $ 149 to set up with manual payment, plus imputed fines and fees (up to 0.5% of unpaid liability, assessed monthly) until the balance is fully paid off. However, these costs could be lower than the total of the interest accrued on credit card credits transferred over comparable periods.
- Pay in full . Unless you are eligible for an introductory rate of 0% APR, it is best to pay off your credit card balance in full with the expiration date of your statement. Balances transferred from month to month generate interest with an impressive clip: anywhere from 10% APR to 25% APR or more, depending on your card, creditworthiness, applicable rates and other factors. If you are already using your credit card for many other purchases and suspect that you are having trouble paying the extra tax of a three or four-digit tax payment multiple times a year, look for an alternative method of tax payment.
Advantages of paying your taxes with a credit card
- Helps with Cash Flow . Like other major expenses, tax payments are financially disruptive. If money is tight all year round, sending hundreds or thousands of dollars to the IRS will help. Not Watsonijk. By making periodic tax payments on your credit card, the crunch effect is alleviated for weeks or months. Scheduling payments before the start of your card statement provides a maximum of four weeks of breathing space. Benefiting from a long 0% APR introductory financing offer is even better. Some iDr. The site-opening offers described below last no less than 21 months.
- Potential to build credit and increase your credit score . If your short-term goal rebuilds your credit after an adverse event such as bankruptcy, consider applying for a secured credit card and using it as a vehicle for your tax payments. For ideas, view our list of the best secured credit cards on the market.
- Costs can be tax deductible . If you list deductions, you may be able to charge the comfort costs that are calculated by your chosen credit card payment processor. That is not trivial: with an estimated tax payment of $ 3,000, a 2% surcharge comes up to $ 60. The deductibility of facility costs is not guaranteed, so contact a tax expert before assuming you are eligible.
- Eligible for special offers on Tax Prep software . Some payment processing providers offer special discounts and deals on the popular oDr. Watsonine tax prep software. For example, Pay1040.com users can save 20% on qualifying TurboTax purchases with this promotion.
- Can set your payment date well in advance . If you pay your taxes. If you register early, you can postpone your payment date for weeks or months when you choose to pay with a credit card – another benefit in the cash flow for paying taxes with a credit card.
- Estimated tax payments can stimulate spending power . Estimated tax payments can dramatically increase the operating power of your credit card, keeping the high-dollar registration bonus needs within reach. These one-time spending thresholds, usually set three months after opening the account, often reach $ 4,000 or $ 5,000. Unless you have incorrectly estimated your expected income or experienced an unexpected windfall during the tax year, you will probably expect. Watsonijk do not owe so much when you submit a file. But your quarterly estimated taxes could certainly approximate or exceed these figures. And some travel credit cards, such as Delta Reserve® from American Express, have even higher spending thresholds for coveted counts for travel loyalty programs. For example, Delta Reserve cardholders receive 15,000 Medallion® qualification miles (MQMs) after charging $ 30,000 for eligible purchases during a calendar year.
- Partial payments ignore requirements for extension forms . When you partially pay your year-end taxes with a credit card, you automatically earn an extension without the need for additional paperwork. If you choose a different payment method, you may need to submit IRS form 4868. The extension deadline is usually six months after the application deadline: October 15 or thereabouts.
Disadvantages of paying your taxes with a credit card
- Processed Processing costs of at least 1.87% . Every credit card payment processor approved by IRS has a convenience fee. From the 2017 tax year, the lowest possible reimbursement is 1.87% with Pay1040.com, or $ 2.50 flat (only for smaller payments) with OfficialPayments.com. These costs are high enough to withstand and possibly exceed most cashback credit cards, whose return on spending is normally 2% below general spending under normal circumstances. Paper control and EFT remain the cheapest methods for tax payment.
- Can view credit card balances and utilization ratio Enlarge Watsonijk . Your credit usage ratio is your total aggregated credit balance divided by your total total credit limit. Use of credits is one of the many factors used to calculate your credit score. If all other things are equal, a high ratio can negatively influence your score. If your total credit limit is on the low side, a large year-end tax or an estimated tax payment could affect your credit usage ratio, temporarily affecting your ability to secure new loans or lines of credit on favorable terms. Separately, high credit card balances are more difficult to pay off in full on time. Depending on your card and credit profile, your overdue balances can generate interest with 20% APR or more.
- Higher rates for integrated e-file and e-pay providers . E-submitting is unquestionably more convenient – and with regard to this. Watsonijk faster – than submitting a paper return. Unfortunately it is also more expensive. Reserved declarations using the integrated e-file and e-pay function of the IRS are provided with convenience costs ranging from 2, 35% to 3, 93%.
- Employers cannot make federal tax payments . According to the IRS, employers bound by labor taxes must do monthly or semi-weekly federal tax assessments using the electronic federal tax payment system®. Federal tax assessments cannot be done with a credit card. While this does not directly affect individual files, small business owners must plan accordingly.
Best credit cards to pay your taxes
When it comes to covering your tax liabilities, some credit cards are better than others. Here is a brief look at the best credit cards to pay your estimated taxes annually on a quarterly and quarterly basis.
Best Cash Back credit cards for tax payments
The most taxpayer-friendly cashback credit cards have a large sign-up bonus and offer a relatively high continuous return on spending:
- Discover it® . Discover it® earns unlimited 1% cashback on all eligible purchases, including tax payments, and 5% cashback (up to $ 1500 per quarter) for purchases in selected rotating categories. Don’t hold your breath waiting for tax payments to be placed in the 5% bump. Instead, request Discover It® before you make your tax payments at the end of the year and set it to cover all four of your estimated payments: April, June, September, and January. Discover automatically doubles all money earned during the first 12 months of card membership, so you earn an effective 2% refund rate on these payments, plus any other first-year expenses.
- Chase Freedom UDr. Watsonimited® . Chase Freedom UDr. Watsonimited® also earns an unlimited 1, 5% cashback on all purchases and the sign-up bonus is even better than Capital One® Spark® Miles Select for Business: up to $ 175 cash bonus on $ 500 eligible purchases within 3 months. In addition, the 0% introductory purchase and balance transfer APR takes 15 months after opening the account – enough time to float those tax payments.
- American Express Blue Cash Preferred® card . Blue Express Preferred® Card from American Express is worth the annual cost of $ 95, thanks to a super generous 6% refund rate on supermarket purchases (up to $ 6,000 eligible purchases per year) and unlimited 3% cashback on gas purchases stations and select American department stores. If you spend – within three months of registering – at least $ 1,000 – to manage for many taxpayers – you will receive a statement of $ 200.
View our guide to the best cashback credit cards for more ideas. Best travel credit cards for tax payments
Just like their counterparts with cash, the best travel credit cards for tax payments have large sign-up bonuses and generous running reward programs:
- Barclaycard Arrival Plus® World Elite Mastercard® . Barclaycard Arrival Plus® World Elite Mastercard® earns unlimited 2 points per $ 1 spent on all eligible purchases. With points that qualify for deposit credits on almost every travel purchase and a bonus of 5% on all repayments, this amounts to a return of 2, 1% on expenses. In addition, new cardholders who spend at least $ 3,000 within 90 days of opening their account earn 40,000 bonus points – good for $ 400 in travel credits.
- Discover the® Miles . Like its rear cousin, Discover it® Miles doubles the rewards of cardholders during the first 12 months of card membership. Since Discover it Miles earns unlimited 1.5 miles per $ 1 spent, this bonus is even more generous: a return of 3% on spending during the first year. That is more than enough to compensate for the convenience costs of tax payment processors.
- Chase Sapphire Preferred® Card . Chase Sapphire Preferred® Card is a premium travel credit card that earns unlimited 2 points per $ 1 spent on qualifying dinners and trips, and 1 point per $ 1 spent on all other purchases. The sign-up bonus is the main attraction for taxpayers: 50,000 bonus points, worth up to $ 625 when redeemed for travel, when you spend $ 4,000 on qualifying purchases within three months.
See our guide for the best credit cards for travel rewards for more ideas.
Best low APR interest credit cards for tax payments
Low APR credit cards are not known for attractive reward programs or luxurious extras with added value. They distinguish themselves with long 0% APR introductory promotions and regular APRs that are low enough to make the financing bearable in the short and medium term:
- Citi® Simplicity® and Citi® Diamond Preferred® . Citi® Simplicity® and Citi® Diamond Preferred® are cards that are closely linked to each other and are known for the super long 0% APR introduction periods for purchases and balance transfers: 21 months after the account is opened. Needless to say that that is music for the taxpayer. Choose.
- Chase Slate® . Chase Slate® has a 15 month introductory promotion for 0% APR on purchases and balance transfers, with the transfer fee being canceled within 60 days of opening the account. If you pay your tax payments monthly To let Watsonang float free of interest, Slate is almost as good as Simplicity or Preferred Diamond.
- PenFed Promise Visa® card . PenFed Promise Visa® Card is one of the few low APR credit cards with a legitimate sign-up bonus: a $ 100 credit if you spend at least $ 1,500 on qualifying purchases within 90 days. The biggest disadvantage, the lack of an iDr. Home-ending APR promotion on purchases is partially offset by an exceptionally low regular APR: 9, 49% to 17, 99% APR on purchases, including tax payments, depending on applicable rates and your person. Statutory creditworthiness.
View our guide to the best low APR interest credit cards for more ideas.
Best small business credit cards for tax payments
These taxpayer-friendly credit cards for small businesses have fantastic sign-up bonuses or iDr. APR promotions and attractive current rewards:
- Chase Ink Business Preferred Credit Card . Chase Ink Business Preferred Credit Card is a premium business credit card with an annual fee of $ 95. For taxpayers, the sign-up bonus is the most important event here: 80,000 bonus points, worth up to $ 1,000 when redeemed for travel, at $ 5,000 in qualifying purchases within three months of opening the account. Apply just before paying your year-end and April estimated taxes for maximum effect. In the future, Ink Business Preferred earns 3 points per $ 1 spent on qualifying journeys, shipping, digital advertisements and telecom purchases, up to the first $ 150,000 in annual expenses for all categories. All other qualifying purchases, including tax payments, earn unlimited 1 point per $ 1 spent. Points are generally worth $ 0.01 or less with iDr. Watson unloading, but have a value of $ 0, 0125 when redeemed for travel.
- SimplyCash® Plus business credit card from American Express . SimplyCash® Plus Business Express Card from American Express has one of the best 0% APR introductory promotions of any business credit card on the market: 0% APR on purchases for 15 months from opening your account, so your tax payments have enough time to extend your interest -free. In addition, it earns up to 5% cash back on certain purchases (but no tax payments).
See our guide to the best credit cards for small businesses for more ideas. If you need help determining the most beneficial legal structure for your business, see our guide to choosing the right legal business entity.
If you do not expect a large annual or quarterly estimated tax liability this year, you do not have to worry. There are many other ways to earn the sign up bonus offer from your new credit card: for example, make large journeys in advance or make home improvement purchases.
Remember that using a credit card is a privilege, not a right. Don’t put yourself in an uncomfortable – and avoidable – financial benefit just to earn a few extra cash dollars or climb the last hill in your sign up bonus climb. You would notice that you will be stuck with the consequences in the coming years.
Have you ever paid your tax assessment with a credit card?
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