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The 10 Best Credit Cards for Paying Taxes in 2021 [And When It Makes Sense]

Pay Taxes
BY 
Christine Krzyszton
- UPDATED:
  1. Credit Cards

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Ben Franklin reminded us years ago that there are only 2 certainties in life and 1 of them is taxes — we have to pay them.

How often you have to deal with this inevitability depends on your situation. If you have income tax withheld from your paycheck by your employer, you may seldom think of taxes until you file that annual tax return and either receive a refund, break-even, or have to pay the IRS an additional amount.

Those who are self-employed, run a business, or pay quarterly estimated income taxes, may deal with taxes on a more consistent basis.

There are also property taxes with which to contend. You may have yours deducted when you make your mortgage payment or perhaps you send a check once or twice a year.

Regardless of the type of tax you have to pay, one thing for sure is that tax payments fall firmly into a major expense category. And, as usual here at Upgraded Points, we’re thrilled if we can find a way to earn credit card rewards on any major expense.

The fact that you can pay your taxes with a credit card and earn rewards, however, begs the question of whether you should. Does it really make economic sense to do so?

That’s the topic on our agenda today. We’re going to explore the options you have for paying your taxes with a credit card and discuss when you might benefit from actually doing so.

Why Pay Your Taxes With a Credit Card?

Paying your taxes with a credit card involves paying an associated processing fee. For this reason, it only makes sense to pay your taxes with a credit card if you are receiving value beyond the cost of those fees.

For example, if you are paying a 2% processing fee to make your $3,000 tax payment, you will be paying $60 in fees in addition to the $3,000 payment. If you were to make the payment using a credit card that earns 2% cash-back, you will break even and not realize any additional value for making the transaction.

So, when does it make sense to pay your taxes with a credit card? There are several situations — here are a few.

Qualify for a Welcome Bonus

Welcome bonuses are offered as an incentive by credit card issuers to apply for a particular credit card. These welcome bonuses can be valued at hundreds, even thousands, of dollars.

In order to receive the welcome bonus, however, you must meet minimum spending requirements in the first 90 days after card approval. Paying your taxes using your credit card during this time frame could allow you to qualify for the welcome bonus and receive value far beyond the cost of the processing fee.

Earn Rewards

If you have a card that earns 1.5 points per dollar spent and each point is worth 1.5 cents at redemption time, you are effectively receiving 2.25 cents in ultimate value for every dollar spent on the card.

If you are charged a 1.87% fee for paying your taxes with that credit card and receive 2.25% in rewards value, you will come out ahead.

Meet Specific Spending Tiers

Many credit cards offer incentives when you reach certain spending thresholds. For example, an airline-branded card may offer a companion airfare certificate after reaching $30,000 spent on the card in a calendar year.

If your credit card has one of these spending tiers, the value you receive by reaching it may far outweigh any tax payment processing fee.

Delay the Actual Cash Outlay

Perhaps it would be beneficial to avoid paying your taxes on April 15th because you do not yet have the cash available. Depending on your credit card statement cutoff date, making the payment using your credit card could grant you the additional time needed to gather the cash.

Paying a payment processing fee may well be worth the added convenience, especially if you’ll also be earning rewards.

Bottom Line: Paying your taxes with a credit card only makes sense if you receive value that is greater than the cost of the processing fee. 

Pay Taxes with Credit Card
It’s easy and safe to pay your federal income taxes online with a credit or debit card. Image Credit: payUSAtax

Which Taxes Can be Paid With a Credit Card?

You can pay nearly every type of tax with a credit card. Here are a few examples.

Federal Income Taxes

Personal

  • Any 1040 owed taxes for current year, prior years, existing installment agreement payments, or penalties
  • Any 1040-ES estimated taxes

Business

  • Any series 940, 941, 943, 944, 945, 1041, 1065, and 2290 required payments
Official Payments
IRS-approved service providers make it easy to pay your taxes and more with your credit card. Image Credit: Official Payments

State and Local Income Taxes

Most states allow you to pay your state and city income taxes with a credit card for a fee.

Property Taxes

Property taxes can normally be paid with a credit card through a service provider but some jurisdictions take credit card payments directly and charge a fee.

Other Taxes and Payments

It is possible to pay court fines, tickets, utilities, and other local payments with your credit card. Before using a service provider that charges a fee, however, you might want to contact your local authority or visit their web site to see if they take credit cards directly without a fee or for a lower fee than the service providers.

Bottom Line: You can pay your federal, state, and local income taxes, property taxes, and more with a credit card. 

Etihad Apartment, Suite View in Light Leather
Experience first class treatment using rewards you earned by paying your taxes. Image Credit: Upgraded Points.

The Best Personal Credit Cards for Paying Your Taxes

Let’s first reiterate why you’d want to pay your tax obligations with a credit card. It makes sense to use a credit card when you’ll receive value that is greater than the cost of the payment processing fee.

Here is just a sampling of cards that could reward you nicely when paying your taxes.

The Platinum Card® from American Express

This premium travel rewards card, loaded with luxury travel benefits and perks, is a must-have for the frequent traveler.

The welcome bonus on the Amex Platinum card serves as the perfect opportunity to use the card to pay your taxes. Welcome bonuses vary but a 60,000 point welcome bonus will equal a minimum of $600 in travel value; a 100,000 point welcome bonus, $1,000 in travel value.

The card will earn 1 Membership Rewards point per dollar spent on taxes.

While redeeming points on Amex Travel yields a value of just 1 cent per point, transferring Membership Rewards Points to airline or hotel partners can yield far greater value. Check out some inspiring ways to maximize your Amex points in our guide.

Hilton Honors American Express Aspire Card

The Hilton Aspire card comes with a generous welcome bonus that can be worth several hundred dollars in free hotel nights. In addition, the card will earn 3 Hilton Honors rewards points for each dollar spent paying your taxes.

The welcome bonus varies but you could receive up to 150,000 Hilton Honors points after meeting minimum spending requirements in the first 90 days after card approval.

The card comes with a free weekend hotel night certificate and an additional free night after spending $60,000 in a calendar year. You can access a list of rates & fees here.

Chase Freedom Unlimited® Card

The Freedom Unlimited card will earn 1.5 Ultimate Rewards points per dollar spent on your taxes.

If you have a premium Chase Ultimate Rewards earning card such as the Chase Sapphire Reserve® card, you can transfer Freedom Unlimited points to that card and receive 1.5 cents in value per point when redeeming for travel. This results in a 2.25% return which can exceed a tax payment processing fee.

You can receive potentially more value when transferring Ultimate Rewards on either the Chase Sapphire Preferred® card or Chase Sapphire Reserve card to airline/hotel partners.

You’ll also receive a modest welcome bonus after approval and meeting (also modest) minimum spending requirements.

Chase Sapphire Reserve Card

The best time to use your Chase Sapphire Reserve card for paying your taxes is to earn the welcome bonus. It’s worth hundreds of dollars in travel and is yours as soon as you complete the minimum spending requirements.

Additionally, the Chase Sapphire Reserve card and the Freedom Unlimited card make a nice pairing. While the Chase Sapphire Reserve card earns just 1 Ultimate Rewards point per dollar spent on taxes, the Freedom Unlimited card earns 1.5 points per dollar spent.

You can use your Freedom Unlimited card to pay your taxes then transfer the points to your Sapphire Reserve card to redeem for 1.5 cents in value per point or greater when using travel transfer partners.

Learn more about redeeming Ultimate Rewards points for maximum value in our guide.

Chase Sapphire Preferred Card

Using the Chase Sapphire Preferred card to pay your taxes to earn the welcome bonus can result in good value.

Aside from the welcome bonus, however, the Chase Sapphire Preferred card will be earning just 1 point per dollar spent on taxes. You can redeem your points for 1.25 cents each on the Chase Travel Portal but you may still not receive value beyond the cost of the processing fees.

You could receive greater value when transferring your Ultimate Rewards points to airline/hotel partners.

Radisson Rewards™ Premier Visa Signature® Card

The Radisson Rewards Premier card earns 5 rewards points per dollar spent when used to pay taxes. Free hotel nights start at just 9,000 rewards points.

After spending $10,000 on the card in a calendar year, you will earn a free hotel night certificate good at any participating domestic Radisson property.

Citi® Double Cash Card

Earning 1% cash-back when you spend and an additional 1% when you pay off your balance makes the Double Cash card a strong contender for paying your taxes.

In addition, it is possible to receive even greater value by converting your cash-back to ThankYou rewards points and redeeming for travel.

Bottom Line: To determine whether you should use a credit card to pay your taxes, first calculate the associated fee you’ll have to pay. Then determine the value of the rewards you will earn and compare. When calculating the value of the rewards, consider how many rewards points you earn per dollar spent and the potential value of each reward based on your redemption preference. 

The Best Business Cards for Paying Your Taxes

Any business credit card will work to pay your taxes if it results in you earning more than the cost of the processing fee.

Here are just a few examples of some of the best cards for making those payments.

Business Credit CardEarnings per Dollar Spent on TaxesOther Features
Ink Business Unlimited® Credit Card1.5% cash-back earned in the form of Ultimate Rewards points$0 annual fee, Ultimate Rewards can be transferred to premium Ultimate Rewards-earning cards for up to 50% more value
The Business Platinum Card® from American Express1.5 Membership Rewards per dollar on purchases $5,000 or more, up to 1 million additional points per yearPoints can be transferred to travel partners for potentially greater value, generous welcome bonus

Hot Tip: As a business, the processing fees you pay to the service provider may be deductible as a business expense. Ask your tax professional for more information and to find out if your business qualifies. 

Pay Income Tax with Credit Card
The IRS has approved 3 vendors for paying federal taxes. Image Credit: IRS

How to Pay Your Taxes With Your Credit Card

Federal Taxes

The IRS does not take credit cards for direct payment of your taxes. They do, however, issue a list of authorized vendors that will facilitate your federal tax payments and assure that these payments are deposited with the IRS.

These approved service providers accept most credit/debit cards and digital wallet payments but they also charge a payment processing fee.

To pay your federal taxes with a credit card, you simply visit the site of your choice, select the type of payment (personal or business) you want to make, then the category (1040, 1040-ES, etc.), and finally the type of card you wish to use.

You’ll be asked for your social security number and additional information. Once your payment is submitted, you’ll receive immediate confirmation for your records.

Federal tax payments are limited to 2 payments per quarter, per vendor.

State and Local Taxes

You can pay your personal state income taxes, business taxes, or local income taxes online, or if you prefer, over the phone. Mastercard has published a helpful list of approved payment service providers for each state. You do not need to use a Mastercard to pay with these providers.

Additionally, you can pay your taxes via a payment service such as Plastiq. Service fees can be as much as 2.5% but there are opportunities to earn fee-free transactions.

Bottom Line: Visiting the web site of the entity you’re trying to pay, reviewing the actual invoice (property taxes), or calling directly can yield more information on how to pay a particular obligation with a credit card. 

Final Thoughts

When it comes to paying taxes with your credit card, there’s math involved. You’ll need to determine if the value you receive by doing so exceeds the cost of the processing fees.

Qualifying for a credit card welcome bonus is a valid opportunity for paying your taxes with a credit card. You can also come out ahead when earning rewards that have value exceeding the fees.

Another important aspect of paying your taxes with a credit card is that you must pay off the statement balance in full in order to reap any benefit from the transaction. Interest rate charges negate the value of any rewards received.

Nearly any credit card can be used to pay your taxes but the best card for paying your taxes is the one that delivers the highest value beyond the cost of the processing fees.

The information regarding the Chase Freedom Unlimited® Card, Hilton Honors American Express Aspire Card, and Radisson Rewards™ Premier Visa Signature® Card was independently collected by Upgraded Points and not provided nor reviewed by the issuer. 

For rates and fees of the Platinum Card® from American Express, click here.

Featured Image Credit: Kelly Sikkema via Unsplash

Frequently asked questions

Can I pay my taxes with a credit card?

While you can’t pay the IRS directly with a credit card, you can pay an IRS-authorized vendor with your credit card and the income tax payment will be forwarded to the IRS.

You can also use a payment service such as Plastiq which will send a check to the tax authority whether it’s federal, state, or local.

Many local governments also allow you to pay city and property taxes via an approved vendor for a fee.

Whether it is economically beneficial to pay your taxes with a credit card will depend on if you receive value beyond the amount of any fees paid.

Which is the best credit card for paying taxes?

The best credit card for paying taxes is the one that results in greater value received than what you paid out in processing fees.

For example, if a credit card has a large welcome bonus, you may be able to meet the minimum spending required to earn that welcome bonus while paying your taxes. If you value the welcome bonus as being greater than the processing fees you paid, it may be a good card to use.

You’ll want to compare several different credit cards, however, to determine which offers the greatest value for your tax payment.

How much does the IRS charge to pay taxes with a credit card?

The IRS does not accept credit cards directly — you must use an approved vendor to facilitate your payment.

There are 3 approved IRS vendors and their fees range from a $2 flat fee for debit cards to a 1.99% fee for using a credit card or digital payment.

The fees charged by the vendor are not forwarded to the IRS.

Will the credit card process my tax payment as a cash advance?

No, your payment will be processed as a purchase and not as a cash advance.

When can I pay my taxes with a credit card?

You can make a maximum of 2 payments per quarter, per authorized vendor, for federal taxes.

The vendor will disclose any limitations prior to you submitting a payment and you can plan your strategy accordingly.

Christine Krzyszton

About Christine Krzyszton

Christine, who lives in Northern Michigan, travels about 300,000 miles a year despite her remote location. Her expertise is traveling the world on a weekend with no pre-determined destination in mind, letting the cost of the airfare determine where she will go. She has over four million flown miles and elite status on all three major domestic carriers.
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