Advantages and Disadvantages of Paying Taxes with a Credit Card

These days you can use your credit card to pay for practically anything – from groceries to airline tickets for a family trip to Maui. But did you know that you can pay taxes using your credit card? It’s true – this option has been available with the IRS since 1999. However, like many things, it too comes with its pros and cons.

Let’s start with the cons.

To begin with, if you use a credit card to pay your taxes, you’ll have to shell out a pretty hefty convenience fee. Depending on the service provider you choose (Pay1040.com, PayUSAtax.com or OfficialPayments.com), your fee may vary from anywhere between 1.87% to 2%, and if you use tax preparation software, the fees may be as high as 2.35% to 3.93%.

Then, you must consider the interest that you’ll be charged if you are unable to pay off your balance in full before the due date. Credit card interest rates are much higher than those of a personal loan, so you may end up paying a rate that’s as steep as 21%.  

It’s also possible that paying your taxes with your credit card may send a distress signal to your credit card company that you are a credit risk, and rate limits or interest rates could be adjusted.

Now for the advantages.

In certain cases, you can avoid interest altogether if you opt for a zero percent introductory APR offer. Some card companies offer cards that come with 0% interest for a limited period, which may vary from anything between 6 months to 21 months. By taking advantage of this offer, you can split your tax payments over a longer period, and buy yourself more time to pay off your taxes. Nevertheless, this is a route that you should take only if you’re sure that you will be able to pay off the entire amount within the introductory period. Because once this term ends, you may have to deal with very steep interest rates.

Secondly, paying taxes with your credit card gives you the opportunity to win big by way of reward points. These can be in the form of cash back, travel miles, or redeemable points. You can even pay taxes to qualify for welcome bonuses or high-spend bonuses. To earn a welcome bonus, a new cardholder needs to spend a minimum amount within a predefined period. Sometimes, the stakes for this reward are so high that you can win anything from enough airline miles for multiple flights to hotel points for free night stays. Similarly, to tempt existing cardholders to spend more, issuers offer high-spend bonuses. To earn this, you are required to reach a certain spending threshold prespecified by the issuer.

Having said that, you should always remember that the amount of taxes you can pay with your credit card depends on the balance agreement you have with your credit card issuer. Also, if you don’t pay them back on time, on top of interest, you may also be charged late payment fees. These will not only show up on your report, but can also damage your credit score.

Nevertheless, if used responsibly, paying your tax bill through a credit card can be truly advantageous. In fact, if you are careful, you can use high limit credit cards offered by certain issuers to fund expensive purchases as well.

At Fund&Grow, we utilize creative credit card financing in such a way that we are able to help clients with good credit obtain as much as $250,000 of unsecured credit at 0% for a period of 6, 12, or 18 months. This amount can be used for any purpose – from financing a small business to providing a down payment on a property - no questions asked. We will guide you every step of the way. So, if you need these kinds of funds, call us at (800) 996-0270, and we will help you right away.