Should You Pay Taxes with a Credit Card for Points in 2023?
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Can you pay taxes with a credit card? Yes.
Is it worth doing so for rewards? That depends.
The fees involved in paying taxes with credit can offset or even outweigh the value of the spending rewards you'd earn from the transaction itself. But there are some circumstances in which putting a big tax bill on your card can unlock a windfall of points, miles or cash back — such as when the payment qualifies you for a sign-up bonus or pushes you over a spending threshold.
Here's what to consider to determine whether you'll come out ahead.
Paying taxes with a credit card means paying fees
The many ways to pay your taxes to the Internal Revenue Service include check, an ACH debit, wire transfer, cash payments, installment payments and yes, even credit cards.
To make an IRS payment with a credit card, you’ll have to use one of the IRS’s three independent payment processors. Those processors charge your card, then send the money to the IRS. But these payment processors charge fees, which start at either $2.20 or 1.85% of your overall bill, whichever is higher. Here are the processors and their fees for 2023:
ACI Payments, Inc.
Fee as a % of total bill (if greater than minimum fee)
Processing fees on a $500 tax bill
Processing fees on a $5,000 tax bill
Processing fees on a $20,000 tax bill
If you file and pay using tax software such as TurboTax, your fees might be even higher. The TurboTax credit card fee, for example, is 2.49% if you pay income tax via credit card through its website. You can file through TurboTax and pay taxes separately through one of the above payment processors (but you'll still be charged fees by the payment processor).
Given the fees, in many cases it's simply not worth it to pay taxes with a credit card. If your card earns less than 1.85% back on the transaction, you'll lose ground even after collecting your rewards.
And even if you can eke out a higher rate, the fees will take such a big cut that you might not bother. A handful of cash-back cards, for example, pay 2% on everything. Use one of those cards with an IRS payment processor and your net rewards will come out to between 0.02% and 0.13%. On a $10,000 tax bill, that's a grand total of $2 to $13 in rewards.
Look beyond those basic spending rewards, though, and you may find an opportunity to rack up some major miles, points or cash.
Boosting your benefits with your tax bill
Paying your taxes with a credit card can give you outsize benefits in several ways.
Charge taxes to help earn a big introductory offer
Many rewards credit cards offer sign-up or welcome bonuses, where you can collect a giant stash of rewards for spending a certain amount within a relatively short period of time. The biggest bonuses are often tied to bigger spending requirements.
You might find a card offering 100,000 points, but it’ll also require you to spend $10,000 within a few months. That might not be realistic for your normal spending, but could be attainable in the month you’re paying taxes.
Here are this month’s best credit card sign-up bonuses. And if it’s travel rewards you’re specifically seeking, here are the best travel credit card welcome bonus offers right now.
Hit spending thresholds on existing cards for more rewards
Earning 2% cash back when you’re paying a 1.85% credit card processing fee isn’t exactly going to make you rich. But here’s a potentially lucrative option: Use this chunk of spending as a way to claim other benefits.
For example, many hotel cards offer free night certificates if you spend a hefty sum on them. Some Hilton cards offer free night certificates that can be redeemed for hotel night stays worth over $1,000, but they require you to charge thousands of dollars in a calendar year to the card.
Say you owe $15,000 in taxes and would owe $280.50 in Pay1040 fees. But if you charge it to the right Hilton credit card, you could walk away with a free night certificate and redeem it for a room at Hawaii’s opulent Grand Wailea Resort, which otherwise typically costs between $1,200 and $2,000 per night.
Meanwhile, many airline credit cards allow you to spend your way to elite status. For example, JetBlue’s credit card offers automatic JetBlue Mosaic status (which NerdWallet estimates has nearly $2,000 in value if you frequently fly JetBlue) if you spend $50,000 in a calendar year. That’s an unrealistic amount for most household budgets, but might be feasible if you have a large tax bill this year.
Say you charge $20,000 in taxes to the card and spend around $2,500 monthly on the card for a year. Your tax bill would incur close to $400 in processing fees, but the payoff to earn elite status benefits could be worth five times that.
Get points and miles from purchasing tax software
Certain tax preparation software companies run promotions to earn bonus points if you use them. If yours does, don’t forget to connect your accounts to take advantage.
For example, in 2022, it was possible to earn 1,000 American Airlines AAdvantage bonus miles when you purchased certain H&R Block tax software. While that was worth only about $12 by NerdWallet estimates, it was an easy way to net more miles for a purchase you were likely making anyway.
Other tips for paying taxes on credit cards
If you opt to pay taxes with credit cards, there are a few other things you should know:
Understand your credit limit: You might have a $10,000 tax bill to charge to a credit card, but take caution if you only have a $5,000 credit limit. Exceeding that limit can sometimes incur additional penalties or have a negative impact on your credit scores.
You can use multiple credit cards: Paying taxes across multiple credit cards can be handy in avoiding that exact situation of exceeding your credit limit. Charging two different cards can also help you capitalize on two separate sign-up bonuses. If you’re paying money owed on a Form 1040, you can use two different payment types per tax year (or two per month if you have an installment agreement).
Avoid paying interest: In general, it’s not a good idea to make charges on a rewards credit card that you cannot pay off in full purely for the sake of earning rewards. The amount you’ll owe in interest is typically more than the value of the rewards.
If you can’t afford to pay your tax bill in full, you’re likely better off applying for a payment plan with the IRS.
Can you pay taxes with a credit card? Yes. But should you?
If you’ve got a bunch of money to spend in one go (like taxes), you might be able to jump on a sign-up bonus or qualify for a hotel free night certificate that typically requires hefty spending.
Just understand the cost in fees before you pay taxes with your credit card.
How to maximize your rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2023, including those best for:
Flexibility, point transfers and a large bonus: Chase Sapphire Preferred® Card
No annual fee: Bank of America® Travel Rewards credit card
Flat-rate travel rewards: Capital One Venture Rewards Credit Card
Bonus travel rewards and high-end perks: Chase Sapphire Reserve®
Luxury perks: The Platinum Card® from American Express
Business travelers: Ink Business Preferred® Credit Card