Since we’re in the midst of tax-season, and the due date is fast approaching (April 15 for all you slackers…), I wanted to discuss how to pay your taxes with a credit card and when this is (and is not) an advantageous strategy.
It’s important to note that paying your federal taxes by credit card will incur a processing fee. In other words, it isn’t free for you. Hovering in the 2% range, this fee can add up quickly depending on how much you owe.
When is it worth it?
- When the benefits outweigh the transaction fee. In other words, if you are accumulating points, miles or cash back that equate to more than the transaction fee, it’s worth it. In most cases, however, I find this not to be the case.
- You have minimum spending requirements to meet on new cards. Since taxes are usually a hefty amount, paying all or a portion of this bill with a credit card will most likely surpass your minimum spending requirements on those cards to earn any bonuses, albeit at a fee.
When is it not worth it?
- When your taxes are so high that you’d end up losing money on the transaction that isn’t worth it.
- When you aren’t receiving any benefits that are worth more than the processing fee.
- When you do not have any new credit cards with minimum spending thresholds to meet.
How to Pay
The government lists authorized and approved credit card processors here. Processing fees start at 1.87% and go up from there, though you’ll see different charges for using a debit card if that is your preference.
It’s worth noting that the processing fee is deductible, according to the IRS: The fee is deductible for personal tax types as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceed 2 percent of the adjusted gross income can be deducted. For more information, refer to Publication 529, Miscellaneous Deductions. For business tax types, the fee is a deductible business expense.
Here’s what I recommend doing: Once you make a payment, you’ll receive a receipt/voucher proving your payment. Even though it does not say to do this, and the payment process technically replaces the voucher, print a copy of this receipt/voucher and enclose it with your tax returns and mail them in manually. This way, you are both covered from the online and snail-mail standpoint, and there’s proof of payment all around.
Do you pay your taxes with a credit card?
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