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Paying Your Taxes with a Credit Card

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Advance Personal Finance

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Ideally we would all be able to make enough money throughout the year, and gauge our income just right so that when it comes time to file our taxes we are left with a refund rather than owing money (I know there are a lot of personal finance authors out there that say “don’t give the government a free loan!” but I say a tax refund is a good thing). But sometimes it is difficult to know just how much you need to pay, so after you prepare your tax return, you might owe the government some money. Fortunately, you can pay with a credit card.

How to Benefit by Paying Your Taxes with a Credit Card

The IRS uses third party vendors to collect taxes via credit card. These vendors will charge between 1.87% and 2.35% so that they can still make a profit and the IRS can collect everything they are owed. Any tax payment with a credit card needs to offset those fees, and fortunately there are enough rewards cards out there that do this.

Barclay Arrival Plus Card – The Barclay Arrival card offers rewards that are worth 1.1 cents each (or about 1.1%). Not quite enough to offset the fees. But the Arrival Plus card doubles those miles bringing your reward to 2.2% per dollar spent.

United MileagePlus Card – Every dollar you spend with the United MileagePlus Card you will earn 1.5 miles. Extrapolate that to a percentage return, and you get a 2.2% return on your spending.

Chase Rewards Cards – Both the Chase Ink Plus and the Chase Sapphire Preferred cards give you rewards valued at 2.1 cents per dollar spent. Both cards are great options for a net gain on your taxes.

CapitalOne Venture Rewards – The CapitalOne Venture Card gives a full 2% rewards on every dollar spent.

Citi Double Cash Card – This one has had a lot of TV commercials lately. The Citi Double Cash Card has no annual fee and you earn 1% cash back when you make a purchase, and another 1% when you pay.

The bottom line is that if your card doesn’t pay out the equivalent of at least 1.87% rewards, then it doesn’t make a lot of sense to use your existing credit card (and you should sign up for something else so that you make the most of your money). Of course, there is always convenience too.

Suppose you wait until April 14th to file your taxes. Then you find out that you owe a considerable sum (more than you have in your bank account). Do you think the IRS will be gracious and wait the 3 business days that it takes to transfer from your savings? I’ll give you a hint: they won’t be. If you use your credit card you can pay now, and you then have an extra 30-60 days before you actually have to pay for it. No need to rush a transfer from savings to checking.

Wrapping Things Up

Owing money on your taxes is not fun. Having to come up with the cash on the spot is even worse. Fortunately the IRS accepts payment by credit card, and the fees are actually quite small compared to the convenience fee charged by many other businesses. This makes it easier for the individual to actually have a net profit when paying their taxes.

Have you paid your taxes with your credit card before? Did you run into any troubles?




*Editorial Note: Any opinions, analysis, reviews, or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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