Paying Taxes With a Credit Card Just Got Cheaper

A strategic way to pay your income taxes is to use a credit card that earns you points.

Furthermore, using a credit card to pay your taxes can help you meet the minimum spending requirements of a welcome bonus, thereby earning a sizeable number of points or miles.

If you’ve paid your taxes with a credit card or plan to, there’s great news: It’s now cheaper.

Here’s what you should know.

Tax Payment Processors Lowering Credit Card Fees

For many individuals, taxes tend to be the largest expense they face each year. But paying taxes doesn’t always have to be a daunting chore. You actually can earn cash back or travel rewards from the dues you pay Uncle Sam when paying with a credit card.

This strategy can be advantageous if you can pay off your balance in full after paying taxes. This will ensure you avoid incurring any interest, which would undermine the original purpose of using a credit card.

Keep in mind that you’ll pay fees when using a credit card to pay taxes. If you’re thinking about paying your upcoming tax bill with a credit card, you’ll incur a fee of 1.87% with Pay1040 or 1.85% with ACI Payments, Inc. for processing the payment.

While the IRS website claims that Pay1040 has reduced its fee to 1.75%, clicking through to the Pay1040 website shows a fee of 1.87%. However, ACI has lowered its fee from 1.98% to 1.85%, making it a more appealing option compared to Pay1040 as of this writing.

Although the fees associated with using a credit card to pay your tax bill could result in hundreds or even thousands of dollars if you have a large tax debt, there are times when the benefits of paying your tax bill with a credit card can surpass the costs associated with it.

For instance, if you apply for a new credit card to pay your sizable tax bill, you can rack up travel rewards and potentially score a generous welcome bonus once you hit the minimum spending requirements within a specified period. This approach helps you rack up points in no time and with ease.

To illustrate, you could potentially earn up to 250,000 Amex Membership Rewards points from a welcome offer on The Business Platinum Card^® from American Express after paying your taxes and meeting the minimum spend requirement.

We value Amex points at 2.2 cents each, which means you could potentially unlock $5,500 in travel rewards just by using the Amex Business Platinum card to pay your tax bill. However, it’s important to evaluate whether the rewards you receive outweigh the costs incurred by using a credit card for your tax payments.

Final Thoughts

Using a credit card to pay your taxes just got more affordable. The chance to earn a slew of points and miles or cash-back on your tax payment is appealing. Just make sure that you are able to pay off your balance in full after you have settled your tax obligation — and ensure the value of the rewards you earn outweighs the fees associated with using a credit card.