After completing their taxes this year, many Americans will face the unpleasant reality that due to insufficient withholdings, they owe the IRS more money. Some might be tempted to just charge it on a rewards credit card. Why not earn a few extra points?
Then there are the freelancers who might prefer to hold onto their 1099 cash and make quarterly tax payments with a cashback card. Why shouldn’t they rack up some points and squeeze a little extra value out of Uncle Sam?
We’ve got some bad news for you: Payment processing fees most likely outweigh any benefits earned from paying your taxes with a credit card.
To be clear, the IRS does allow Americans to pay their taxes with a debit card or a credit card. However, they outsource the service to third parties that charge payment processing fees ranging from 1.75% to 1.85% of the transaction amount. This would add $175 or $185 to a $10,000 tax bill, for example, a steep price for the privilege of using plastic.
There are isolated scenarios that might justify paying a tax bill with a credit card. But for most people most of the time, the siren song of getting rewards from tax payments runs smack into the reality of fees and charges—and that’s before factoring in interest charges on any revolving balance you end up with.
The downsides of paying your taxes with a credit card
John Thompson, vice president at Spruce, H&R Block’s mobile banking app, doesn’t mince words about the downsides.
"Paying your taxes on your credit card could make your tax bill more expensive due to potential fees, interest on how much you charge, and how long you carry that balance," says Thompson.
Beyond immediate costs, your credit score could take a hit. Your credit utilization ratio—how much of your total credit lines you’ve used—makes up 30% of your credit score. When a cardholder has utilized a high percentage of their available credit, it suggests to lenders they are overextended and more likely to make late payments.
"If the ratio of your debt to your credit limit jumps above 30%—the recommended ratio to maintain good credit—paying your taxes with your credit card could have larger financial implications," says Thompson.
When paying taxes with plastic might make sense
Despite these costs, certain scenarios could justify credit card payments. We would note that these strategies only make sense of the cardholder pays their balance in full every month, and keeps a tight rein on their credit card game:
- Complete a sign-up bonus: Charging a tax bill might push you over the threshold for a lucrative welcome offer. The key? Ensure the value of the bonus outstrips the cost of the processing fee.
- Maximize rewards: Cards that offer 2% or more in cash-back or travel rewards could leave you marginally ahead, even after fees.
- Earn a perk: If you need to hit a spending threshold to earn a bonus reward or elite status, paying the fee could make sense. The IHG One Rewards Premier Credit Card, for instance, awards Diamond IHG One Rewards status after $40,000 in spending.
- Cash flow management: A credit card buys you 30-60 extra days before the bill comes due, which is a potential lifeline for short-term liquidity crunches.
Zack Odem, founder and content creator at Trips Points Travel, took full advantage of his tax bill.
"By paying about $400 in transaction fees, I earned 60,000 Hyatt points, a free night award for a Category 1-4 property, plus eight qualifying nights toward retaining my World Of Hyatt Globalist status,” says Odem. He estimates the value of the rewards he earned at over $2,000 in travel credits.
Can’t pay right away? Credit cards aren’t your only option
If you’re having trouble paying your tax bill, there are better sources of aid than charging the amount on a credit card. The IRS offers short- and long-term payment plans and installment agreements—details are available on their website.
"It's important to look at all your options and weigh the tradeoffs," says Thompson. While credit cards offer speed and convenience, he recommends that most people should look at the IRS alternatives first.
You must apply and qualify for an IRS payment plan. If you qualify, the online setup fees run $22-$68, and the annual percentage rate (APR) is 7%. Compared to the average credit card interest rate, which was 22.8% in November 2024. Most people would save money after the fees by opting for a payment plan over a credit card balance.
Keep in mind that you may be subject to penalties as well, so having a tax expert in your corner will be helpful in deciding if you should go this route.
For most taxpayers, traditional payment methods or IRS-sanctioned payment plans often emerge as the most financially sound choices. In the high-stakes game of tax payments, sometimes the most boring option is the smartest play.
