Should You Pay Your Taxes With a Credit Card?
The question of whether or not to pay your taxes with a credit card has been around for a few years now. According to conventional wisdom, the answer is “no” — the fees associated with doing this are simply too high. But what if your reward credit card is generous enough to more than offset those fees?
Edit: While there used to be a great 5% cash back promo floating around, it has since expired… When this deal was still available, you could couple it with payment through OfficialPayments.com, which charges a 2.49% processing fee, and you can earn a quick 2.51% by paying your tax bill with a credit card.
I would’ve been all over this deal myself this year if we hadn’t intentionally under-withheld to the point that our tax bill will be far larger than what we could reasonably put on a credit card.
Update to add: And no, your credit card rewards aren’t taxable.
Published on February 4th, 2008 - 9 Comments
Filed under: Credit Cards, Taxes
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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I managed to get a tax refund this year (~$200 federal, ~$250 state). However, if I did owe taxes, I don’t think I would put it on my credit card…it’s a very rare card that the cash back would make it worth it. Also, I would worry about paying it off….
Comment by SavingDiva — Feb 4th 2008 @ 4:36 pmIs the fee really so small? That’s what has stopped me in the past.
Comment by livingalmostlarge — Feb 4th 2008 @ 10:48 pm2.51% would be great, but does Citi turn around and 1099 you for it next year?
Comment by Ron@TheWisdomJournal — Feb 4th 2008 @ 11:38 pmHow large of a credit limit does Citi give you for this card? Just curious if it is high enough to make it usable.
Comment by Brandon — Feb 7th 2008 @ 8:09 amBrandon: I suspect that will vary widely based on things like credit score, income, etc.
I know there is an additional fee you pay the IRS if you use a credit card to pay. I don’t remember how much, or maybe it’s a percentage. This could put a little rain on the Citi parade.
Comment by Auditor — Feb 7th 2008 @ 8:47 amAuditor: The additional fee is levied by the payment processor, and it’s 2.49%. That’s it. There are no further fees. Obviously, for a “normal” reward card that gives 1% on things like this, you’re still being the eight ball. But if you have a card paying in the 3-5% range, then you can effectively shave a bit off your tax bill.
For me, I’ll come out ahead by paying one of the Flat fee options rather than a percentage. I owe just under $500, so a $2.96 fee beats the $12.45 through OfficialPayments.com or pay1040.com.
Comment by Amy K. — Feb 7th 2008 @ 9:24 pmD’oh, nevermind, I just saw that the flat fee is for ATM/Debit cards only, and neither of mine have a rewards program associated.
It pays to read the fine print first, oops!
Comment by Amy K. — Feb 7th 2008 @ 9:28 pm