Should You Use a Credit Card to Pay Your Taxes, Nagadline News

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With tax season quickly approaching, you may be realizing that you owe tax money to Uncle Sam. This time of year doesn't have to be stressful as long as you have a plan in place for how you will file your taxes and pay your tax bill.

Money may be tight, so perhaps you're wondering if it makes sense to use a credit card to pay your taxes? Keep reading to find out.

It's possible to pay your taxes with a credit card

Yes, it's possible to pay your federal taxes with a credit card. But should you? It's important to be aware of extra fees that you will be paying when you use your credit card for tax payments. The IRS outlines these fees in advance. What fees you'll pay depends on the payment processor that you use. Here's the breakdown of the fees associated with third-party payment processors:

PayUSAtax: 1.96%, minimum fee of $2.69

Pay1040: 1.99%, minimum fee of $2.58

ACI Payments, Inc.: 1.99%, minimum fee of $2.50

For example: If you owe $1,000 and use Pay1040 to make a payment, you'll pay $19.90 in fees. The higher your tax bill, the more you'll be paying in fees. While the fees may not be much for someone with a smaller tax bill, it can be a lot if you owe more. Always be aware of the fees before you rush to pay your tax bill this way.

If you file your taxes through an online tax preparation company, you will also be charged fees when using a credit card. Here's what common tax preparation companies charge:

H&R Block: 2.49%, minimum fee of $2.50

TurboTax: 2.49% minimum fee of $3.95

For example: If you owe $1,000 and use TurboTax to file and pay your taxes, you'll pay $24.90 in fees.

There's no workaround to avoid paying credit card fees when paying your taxes with a credit card. You'll need to decide if it's worth the fees to use your card.

When it may make sense to pay taxes with a credit card

It may make sense to pay your taxes with a credit card. Here are some examples:

You're trying to hit a minimum spend: If you recently opened a top credit card that requires a minimum spend to earn bonus points, it may be smart to use your credit card to pay your taxes. With that being said, it's essential to consider whether the bonus points outweigh the fees that are charged. If you're going to have to pay hundreds of dollars in fees, it probably isn't a good plan.

You want to earn more points or rewards: Depending on the credit card you have and the earning potential it offers, you may decide to pay your taxes with your card to earn additional points or rewards. Just make sure that the math makes sense. If you don't have a very high tax bill, it may be a good option.

You don't have the funds available in your bank account. Difficult times happen, and even during these situations, Uncle Sam still wants his money. If you don't have the money you owe in your bank account, you may decide to charge your card. Just figure out a plan to pay off this credit card charge as soon as possible so that you avoid paying credit card interest in addition to credit card processing fees. It's never a good idea to pay interest charges if you can avoid it.

The bottom line

Before rushing to grab your credit card on April 15, make sure you consider all payment options. While for some taxpayers, it may make sense to pay credit card fees, it may not be a smart idea for others. Always take a look at the pros and cons to make a more informed choice and have a plan in place to pay off your credit card statement balance.

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