With 1099s, W-2s and other assorted tax statements now being sent out, we’re all being reminded that the tax season is upon us. One of the questions that arises for those who end up with a tax bill is: Is it worth it to pay my taxes with my credit card? Interestingly enough, one of the very first posts on this blog, posted nearly 9 years ago, covered exactly this topic. Since then, some things have changed while others have remained the same.

What remains the same is that the Taxpayer Relief Act of 1997 prohibits the IRS from paying credit card transaction fees. As a result, in order to process credit card payments, the IRS has outsourced that service to third party vendors. Back in 2006, only two payment processors were approved by the IRS and they both charged a 2.49% convenience fee on all tax payments. These days, consumers have a few more choices, and fees have come down a bit:

Payment Processor	Credit Card Fee	Min fee
PayUSAtax.com	1.87%	$2.79
ValueTaxPayment.com	1.87%	$2.79
OfficialPayments.com/fed	2.35%	$3.50
ChoicePay.com/fed	1.88%	$2.75
Pay1040.com	1.87%	$2.59
BusinessTaxPayment.com	1.87%	$2.59

Note: Credit card fees when you make a card payment directly from tax preparation software that offers an electronic filing option may differ from the rates quoted above. Using your credit card and paying through Turbo Tax, for example, will result in a higher fee of 2.49%.

Will your tax payment be coded as a cash advance?
One concern people may have about paying their taxes via credit card is whether it will result in the merchant coding the transaction as a cash advance, which carries fees and higher interest rates compared to a regular purchase transaction. The good news is that according to each of the IRS approved payment processors, your tax payment will be treated like a regular retail purchase.

Rewards Can Mean a Small Profit
With convenience fees under 2%, that means it is possible to make a bit of money if you have a credit card that rebates at least 2%, such as the Citi Double Cash card, the Fidelity American Express or the old Priceline Visa. For example, if you had a tax bill of $5000, the 1.87% convenience fee would run you $93.50 while your rebate would be $100, netting you $6.50 for paying with your credit card.

Those few bucks aren’t worth it, of course, if you don’t intend to pay off your credit card balance in full, as the interest would more than exceed your profit.

If you don’t have the means to pay off the balance in full, then it’s likely that paying by credit card is not the answer, as the credit card fees and interest will be higher than the alternatives. One such alternative is setting up financing with the IRS via an installment agreement. You will still be responsible for paying interest and late fee penalties, but it still should usually be cheaper than paying by credit card.

Taking Advantage of your Grace Period, or Promotional Rates
Another scenario where it may make sense to pay with your credit card is if it has a promotional rate on purchases. If, for instance, you had a card with an intro offer of 0% for 15 months, then paying your tax bill with your credit card could be a good way of getting an interest-free loan. Be aware, however, that you are still responsible for the convenience fees to be paid to the IRS payment processor.

For those who pay in full every month, you can also effectively get an interest-free loan for a few weeks by taking advantage of your credit card’s grace period. For instance, if you make your payment via credit card on April 15, and your card’s statement closes on April 30, you should have at least until May 21 to pay off your balance, since a 21-day grace period is mandated by law. This probably isn’t worth it in most cases, since you’ll still be responsible for paying the 1.87% convenience fee, but if you need a bit more time to come up with the money, it can be a valid option.

Overall, though, it seems that the best scenario for using your credit card to pay your taxes is when you have a rewards card that pays at least 2% and you’re able to pay off your balance in full. Otherwise, it’s probably best to stick to traditional means of settling your tax bill.

Other caveats to consider when paying taxes by credit card:

• There are limits on how often you can make individual and business payments. Visit the frequency limit table by type of tax payment for details.
• High balance payments of $100,000+ may require coordination with your provider.
• You usually can’t cancel payments.
• You can’t make Federal Tax Deposits.
• You can’t get an immediate release of a Federal Tax Lien. Refer to Publication 1468 for payment options.
• You can find this and more info on paying via credit or debit card directly from the IRS