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Here’s One Time Paying Taxes With a Credit Card May Pay Off

Aug. 16, 2018
Cash Back Credit Cards, Credit Cards, Promos, Rewards Credit Cards
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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 …

Except perhaps for Chase Freedom® credit card holders this quarter. Why?

Because PayPal is among that card’s 5% cash back bonus categories for the second quarter of 2018, and because at least one of the IRS’s credit card payment processors accepts PayPal.

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 16.74% - 25.49% 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.

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