Should I pay my tax bill with a credit card?

Breaking down the pros, cons to doing so

Stock image. Anna Shvets (Pexels)

For those who will have to pay money on their tax returns, a big question usually follows once the amount owed is determined: Should I put this tax bill on my credit card?

It all depends on one’s situation and preferences.

Paying taxes with a credit card usually comes with fees of roughly 2%, so if you owe $500, there will be a $10 credit card fee. If you owe $20,000, there will be a fee of $400.

There also can be a limit on how often you can make payments with a card, which can be viewed by clicking or tapping here.

But despite the fees, sometimes it can be beneficial to charge your tax bill on a card.

Here are five pros and cons, according to Finder.

5 pros

  • It helps provide time to pay off taxes. Instead of paying the bill all at once, putting it on a credit card can help pay it off over a longer period, as long as the interest rate on the card isn’t too much higher than an IRS payment plan.
  • The minimum spend for a signup bonus can be potentially be reached. Normally, signup bonuses can be achieved by spending a minimum amount on a card. If the processing fee from the IRS doesn’t erase any potential gains from the bonus, then charging your tax debt can help you reach the bonus.
  • Rewards can be achieved. As long they are worth more than the fee, you can gain rewards on a credit card, such as airline miles, points or cash back.
  • Payments can potentially be deferred. Those with a 0% intro APR credit card can defer payments, which allows that money to grow in a savings account as the team bill is spread out.
  • It can help reach a spending threshold. Paying for taxes with an airline branded credit card can help someone reach a status that will result in rewards such as bonus miles, class upgrades or lounge access.

5 cons

  • You might not be able to afford the fee. If this is the case, a payment plan with the IRS would be better instead of a credit card.
  • Keeping up with the payments can be a problem. If paying for taxes only adds to the debt on a credit card, that will make a financial situation worse, not better.
  • It can hurt your credit score. A big charge on the credit card can be a problem for your score. That can affect attempts to open other lines of credit for things such as a car loan or mortgage.
  • It can hurt your credit utilization ratio. Similar to harming your credit score, a tax payment can take a big portion of your credit line by raising your credit utilization ratio.
  • It can risk maxing out a credit limit. If a tax payment does this, penalties will incur and the ability to make emergency purchases will be negated.

This story was first published in 2021. It has since been updated.

About the Author:

Keith is a member of Graham Media Group's Digital Content Team, which produces content for all the company's news websites.