It’s not all sunshine and refunds during tax season. Maybe you got a nasty surprise this year, and you owe your Uncle Sam a few bucks?
Well, if you’re considering paying the IRS with a credit card, you’ll want to think really, really hard about whether that’s a good idea — because it usually isn’t.
Except perhaps for Chase Freedom® credit card holders this quarter. Why?
That processor, PayUSAtax.com, is for federal returns only. It charges a credit card processing fee of 1.97% of the total amount (with a minimum fee of $2.69) — but your Chase Freedom®, used via PayPal, can earn you 5% back. That’s a net gain on the expense — up to a point.
With the Chase Freedom®, you get 5% back on up to $1,500 in combined spending on grocery stores, PayPal and Chase Pay in the second quarter of 2018 (April, May and June). After you hit the $1,500 cap, your rewards drop to 1%. So depending on how much your bill exceeds that cap — and how much you’ve spent at grocery stores and via Chase Pay — you might not come out ahead at all.
Assuming you do all your 5% spending via PayPal for PayUSAtax.com, the break-even point is $6,185. At that point, you’d earn $121.85 in rewards and pay a processing fee of $121.84.
Of course, aside from bonus caps or processing fees, there are other reasons to avoid putting taxes on a credit card. Among them:
- If you owe a significant sum, paying it with a credit card could boost your credit utilization enough to hurt your credit scores.
- If you can’t pay off the balance in full when your statement arrives, you’ll pay interest, which can eat up your rewards quickly. If you’re still in the Chase Freedom®’s introductory 0% APR period, though, you have a little more breathing room. This card has an APR of 0% on Purchases and Balance Transfers for 15 months, and then the ongoing APR of 16.99% - 25.74% Variable APR.
Conventional wisdom generally advises against using a credit card to pay your tax bill, and that remains sound advice. Exceptions would include a card that can outearn the processing fee and can give you a period of time to pay off the balance with no interest. For some, the Chase Freedom® could meet those criteria.
However you decide to pay, the tax filing deadline is April 17.