ADVERTISER DISCLOSURE

The (Only) Two Reasons to Pay Taxes with a Credit or Debit Card

You can trust that we maintain strict editorial integrity in our writing and assessments; however, we may receive compensation when you click on links to products from our partners. Here's how we make money.

Aw nerds! Looks like this page may be out of date. Head over to our Capital One® Venture® Rewards Credit Card page for updated info.

It’s tax time, and the age-old question resurfaces: should I pay my taxes with a debit or credit card to earn some money back? Let me make the answer easy for you: No, unless you earn 2% rewards on your credit card or some rewards on your debit card. It’s that simple. Read on for our calculations on when to use plastic to pay the IRS, which cards to use, and what happens to do when you need some extra time to pay the tax man.

When you’ll earn rewards, and when you’ll just lose out

If you want to earn cash back, points or miles from filing your taxes, you have two options. The first is to pay by credit card. If you have 2% rewards or more on your credit card, you swallow payUSAtax.com’s 1.89% convenience fee and still come out 0.11% ahead. Sure, that doesn’t sound like much, but it’s essentially free money. The other service providers listed by the IRS charge convenience fees of 2.29% or more, so you’ll pay more in fees than you’ll earn back.

The cards that get you there:

  • The Capital One Venture Rewards: One of our favorite travel cards, it has no annual fee in the first year (use it for the 2011 tax season and skedaddle!) and has the acceptance of a Visa card. Oh, and one more thing. The has a signup bonus of 40,000 Capital One No Hassle Miles℠ when you spend $3,000 in the first 3 months..
  • The Discover Escape: Also earns 2% rewards, but its $60 annual fee isn’t waived the first year, the signup bonus is spread out over a full 25 months, and Discover doesn’t exactly have universal acceptance.

You’ll notice that the Fideliy Amex and Starwood American Express aren’t up there. That’s because payUSAtax doesn’t accept Amex, so it directs you to Value Tax Payment, which charges a 2.29% convenience fee.

Paying by debit: Go big or go home

You can also come out ahead if you pay by debit card and your rewards will be greater than $3.49. ValueTaxPayment.com and payUSAtax.com charge a flat debit card fee of $3.49, so if your debit card earns 1% rewards, you’ll be in the black if you pay at least $3.50. Of course, be sure to check that your debit card gives rewards on taxes – as a reader pointed out, our beloved PerkStreet card excludes tax payments.

Many credit unions, including universally accessible Las Colinas Federal, offer 0.5% rewards on their debit cards – check out our credit union finder to check your eligibility. With a 0.5% debit card, if you pay more than $700 in taxes, you’ll come out ahead.

When should you use a 0.5% rewards debit card over a 2% rewards credit card? If you pay more than $392.14 in taxes (and aren’t uncomfortable with having a lot of money in your checking account), go with rewards debit. Consider the following scenarios:

Taxes Savings
2% Rewards Credit Card .5% Rewards Debit Card
$100 $0.11 -$2.99
$500 $0.55 -$0.99
$1,000 $1.10 $1.51
$10,000 $11.00 $46.51
$25,000 $27.50 $121.51

Pretty quickly, the .5% rewards debit card overtakes the 2% rewards credit card. There are a few caveats to this, though: some debit cards won’t let you earn rewards on taxes. Also, credit cards give you a full 21+ days to pay off your balance without interest, while you have to have the money in your checking account already to pay by debit; and while credit cards limit your fraud liability to $50 no matter what, if you don’t report your card lost or stolen within 2 business days, you could be liable for up to $600 instead of just $50. That said, if you can be vigilant and if you only hold such a large balance for as long as you need to pay your taxes, you can minimize your risk. If you’re paying more than $350 to the IRS (and let’s face it, most of us are), paying by rewards debit is the way to go!

Can’t afford to pay all your taxes right now?

Another reason to use a credit card to pay taxes is a simple lack of cash. If you get a 0% introductory APR credit card, you can pay your taxes come April 15th, and take 6, 12 or even 18 months to pay it off. You will pay the 1.89% upfront fee, but that’s a small price to pay for no interest on your debt. The longest introductory period goes to the Citi Diamond Preferred, with 18 months of no purchase or transfer APR or annual fee. But if you don’t need the full 18 months, you can get the best of both worlds with an intro 0% APR period and rewards! The Capital One® Quicksilver® Cash Rewards Credit Card gives you time to pay off your taxes interest-free, and will throw in 1.5% rewards in the bargain. It, too, has no annual fee.

Happy tax day, everyone!

  • fredfnord

    So, do you only push cards that you have affiliate links for? Because I know of at least two other cards that earn 2% cash back and are arguably better than the two listed above, and I notice that you don’t mention either one.

    • http://www.nerdwallet.com/ NerdWallet

      Could you tell us which ones? The other 2% cards we know of (the Fidelity Amex and Starwood Amex, sort of) aren’t accepted by payUSAtax, since that company doesn’t take American Express.

  • Asdf

    2 miles per dollar is not 2% cashback.

    • http://www.nerdwallet.com/ NerdWallet

      We consider Capital One’s No Hassle Miles to be equivalent to cash, since you can redeem them at a rate of 1 cent per point, whereas many other programs will significantly devalue your points. Sorry if the language was confusing, we wanted to convey that a NHM is actually worth 1 cent, whereas, for example, a mile on an airline card may be worth less than 1 cent because you have to pay for taxes and fees.

  • JAG1446

    I guess you didn’t double-check with PerkStreet before posting your article. PerkStreet doesn’t give rewards for tax payments. Is that the case with any of the other cards you wrote about or did you check?

    • http://www.nerdwallet.com/ NerdWallet

      Hey there,

      Thanks so much for pointing this out! We didn’t notice that they’d wised up to the paying-with-debit strategy – and they also took out payments via PayPal, Venmo and the like. We’ll be sure to update!

  • CHA

    Would PayPal 1% reward debit card work? Or no for some reason?