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If you’re not getting a tax refund and you have to pay, you can pay IRS taxes with a credit card. Depending on who you talk to, paying your income taxes with a credit card is either brilliant way to earn credit card rewards or a financial move that is only a last resort. The IRS (the Internal Revenue Service) doesn’t actually accept credit card payments directly. But you can pay the IRS through a third-party payment processor—for a processing fee—for the convenience of paying your federal taxes with a credit card, debit card, or digital wallet. These processors charge roughly 2% of your total payment if you pay with a credit card.

Why pay with a credit card? If you have a rewards card, it’s one more expense that you can earn rewards on. However, if you use payment processing service, make sure your rewards outweigh the cost of the processing fee.

“If you have the money, you want to pay taxes with cash,” said Barbara Taibi, a partner at the global accounting firm EisnerAmper. “You should probably only use a credit card if the rewards you get from the credit card are going to outweigh the convenience fees you pay to charge it.”

Alternatively, you can use a credit card to pay for a software or online tax preparation with efile and epay capabilities and that files your tax return for you. Similarly, you can pay a professional tax preparer to prepare and file your taxes and use your credit card to pay the preparer. With these approaches, you avoid the processing fee and fully maximize your rewards.

Here are a few of the pros and cons to keep in mind if you’re considering paying your IRS taxes with a credit card.

Pro—It’s Convenient and Safe to Pay IRS Taxes with a Credit Card

Dani Owens, a 33-year-old Florida resident, and owner of SEO firm Pigzilla, has paid her taxes at least twice using a credit card. She says she would do it again.

“I didn’t have to worry about my check getting lost in the mail or making sure to keep a high balance in my checking account so that the check would clear,” said Owens. “Plus I use a rewards credit card so I get cash back on purchases. This includes paying my taxes.”

The convenience of paying income taxes with a credit card is why it’s appealing to so many taxpayers. Paying this way also offers the added peace of mind of being safe, says Josh Zimmelman, president of New York-based Westwood Tax and Consulting.

“The IRS only uses certain payment processors that they’ve deemed safe and secure,” he explained. “Your information will only be used to process your payment and not saved or used for other purposes.”

Potential Pro—Credit Card Rewards

If you happen to have a credit card that offers frequent-flyer miles or pays cash back, you might benefit from charging a transaction like an income tax bill, potentially earning yourself a free vacation or your next cash back bonus. The secret here is the size of your tax bill and your bonus.

In 2019, the payment processing fees for the three IRS-approved payment processors are 1.99%, 1.96% and 1.87% with minimum fees of $2.50, $2.69 and $2.59 respectively. So, if your tax bill is $500, you’ll pay a $9.95 fee if the processing fee is 1.99%. If your tax bill is $5,000 though, you’ll pay $99.50. If your rewards credit card offers a 1% cash back, you essentially lose money as your cash back reward will only be $5 or $50 with our two examples. But, if your reward is 2%, you’ll come out a bit ahead with a $10 or $100 reward.

“You’ll have to compare the rate of the reward to the rate of the fees and see if you’re actually getting a deal or not,” advises Zimmelman.

Some cards offer added rewards as a sign-up bonus—see some rewards card options. You could get a new card and pay your taxes to take advantage of a bonus like this.

A note of caution—check the terms of your credit card. Some don’t allow receiving rewards for payments to the IRS.

Possible Con—Processing Fees

One of the drawbacks to consider when paying taxes with a credit card directly to the IRS are the fees charged by the payment processors. For the convenience, you’ll pay a minimum of $2.50 as noted above. So, if your tax bill is less than about $150, you’ll pay more than a 1.99% fee to use your card. It may not be worth the convenience.

Another option is to pay with a debit card. Payment processors charge a flat fee of $2 to $3.95 depending on which processor you use and how large your payment is. Still, there is a cost. And a stamp may be cheaper.

Digital wallet payments to the IRS carry the same fees as debit or credit card payments, depending on the digital payment method you use.

Con—You Increase Your Credit Card Debt

If you can’t pay off the credit card debt you get when you pay IRS taxes with a credit card right away, paying with your credit card isn’t likely the way to paying taxes. That’s true even if you pay thru a payment processor or thru software or online tool or thru a tax professional.

“You could end up putting yourself into considerable debt,” says Zimmelman. “If you’re sure you’ll be able to pay off your credit card balance, in full, relatively quickly, then using a card to pay your tax bill might actually help improve your credit score. However, more likely, this move could damage your credit score.”

Putting a large tax bill on your credit card increases your debt utilization ratio, which has a negative impact on a credit score.

Potential Pro—Avoiding Penalties and Interest

Depending on how much you owe in taxes and how long it takes you to pay the IRS, you may save money—in the form of avoiding IRS late penalties and interest fees—by paying the bill immediately with a credit card. That’s assuming those fees and penalties don’t outstrip the APR on your credit card, of course.

But it’s critical that you calculate how much you’ll save or lose before you make this decision, says Zimmelman.

The IRS penalty for late payment of taxes is 0.5% of your unpaid taxes for each month that the payment is late up to 25%, according to the IRS website.

The interest rate for unpaid taxes is determined quarterly and is the federal short-term rate plus 3%. Interest starts to accumulate on unpaid taxes one day after the due date and is compounded daily.

The IRS does offer installment agreement plans. The rate for short-term plans of 120 or less will likely be lower than the interest on a credit card for a similar timeframe. Long-term plans come with some steep fees. So, if you can do a payment plan and pay less than you might pay on your credit card, especially if using your card will put you into a high debt utilization ratio, consider an IRS installment plan, which won’t impact your credit score.

“You have to remember that your interest rate applies to the purchase and will continue to do so until the purchase is paid off,” said J.R. Duren, personal finance expert with HighYa.com “So, if it takes you six months to pay off that $3,000 and your interest rate is 16.24%, you’ll end up paying $143 in interest.”

If you don’t have the money to pay a tax bill immediately and want to use a credit card, a zero-interest credit card may be the most cost-effective approach. It lets you avoid IRS finance charges and credit card interest charges. Remember though, be prepared to pay that credit card bill in a timely manner—in other words, before the promotion ends.

If you’re concerned about your credit, check your three credit reports for free annually. To track your credit more frequently, Credit.com’s free score and credit report card is an easy-to-understand breakdown of your credit information. It uses letter grades to let you quickly and easily see where you stand in five different areas that affect your credit—plus, your credit score and grades are updated every 14 days.

This article was originally published March 15, 2018, and has since been updated by another author.

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