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

Credit Card Basics, Credit Cards
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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’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.

One generous card you may want to consider for taxes is the Capital One® Venture® Rewards Credit Card. Earning 2 miles for every $1 you spend, it has an annual fee of $0 for the first year, then $59. It comes with a big sign-up bonus, too: Enjoy a one-time bonus of 40,000 miles once you spend $3,000 on purchases within 3 months of approval, equal to $400 in travel.

Keep in mind that payUSAtax doesn’t accept American Express, so it directs you to Value Tax Payment, which charges a 2.29% convenience fee.

» MORE: Are credit card convenience fees legal?

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. and 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 long 0% introductory APR credit card, you can pay your taxes come April 15th, and take longer 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.

Happy tax day, everyone!

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