There are a few cases where paying taxes with a credit card can make sense. For example, if you anticipate receiving the money after the IRS deadline, using your credit card as a short-term loan to cover the expenses can be a good idea. You can then pay off your credit card balance when you receive the money. However, make sure that you keep in mind the maximum amount you can borrow per year.
Generally, credit card payments make sense only if the rewards outweigh the processing fee, which can run anywhere from 2% to 4%. This isn’t always an attractive option, and you must have sufficient cash to pay off the balance before incurring interest. A debit card with rewards is a better option. However, it is important to note that it is impossible to earn rewards for making PIN-based transactions using a credit card.
The IRS can be intimidating, and the payment may feel less stressful when you use your credit card for tax payments. Many cash-back credit cards have flat-rate rewards structures, which are better than bonus rewards for specific spending categories. If you’re paying a $5,000 tax bill with a rewards rate of 1.5%, you’ll receive $75 in cash back.
Using a credit card to pay taxes is not recommended if you owe a large amount of money. While it can save you a significant amount of money, using a credit card to pay your taxes can have several disadvantages. Moreover, it can earn you reward points, miles, or cash back.
Another benefit of paying taxes with a credit card is the points. Some credit card companies award points on other purchases – like groceries. Others won’t give points on tax payments. The point-rewards ratio for paying taxes with a credit card may not be the highest, so do the math carefully before paying with a credit card.
The fee is $3.99, and you can only use it once a day. The fee will be a very small amount compared to the other costs. Depending on your credit card’s annual benefit threshold, you may want to use your credit card to pay taxes. It’s a good idea to consider whether the fees associated with using credit cards are worth the convenience they bring.