If you’re self-employed or hustling on the side, you already know the pain quarterly tax payments can bring. Every three months, you mail in or transfer a percentage of your income then hope and pray it’s the right amount.
But, should you pay those quarterly taxes with a credit card? Every time a quarterly tax payment roll around, this question is asked.
To be honest, though, it really depends. There are benefits for doing so, but associated costs as well. At the end of the day, it really depends on how many points you earn in return.
How to Pay Your Taxes with a Credit Card
The Internal Revenue Service (IRS) lists three outside providers that facilitate tax payments by either debit or credit. These options include Pay1040.com ($2.59 flat fee for debit, 1.87% fee for credit), PayUSAtax.com ($2.69 flat fee for debit, 1.99% fee for credit), and OfficialPayments.com/fed ($2.50 – $3.95 flat fee for debit, 2.25% for credit). If you meet certain guidelines and payment thresholds, you can pay your federal tax bill through any one of these services. Since Pay1040.com charges the lowest percentage by far, it’s easily the best deal. But, should you do it?
Obviously, paying 1.87% of your tax bill as a fee for using credit is only worth it if the rewards you earn are worth more than that. Since many cards offer 2 percent back or more, you can easily come out ahead. The Citi Double Cash card is one example of a card that would allow you to profit from paying your taxes with credit. With this card, you earn 2 percent back on everything – 1 percent when you make a charge 1 percent when you pay it off.
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Citi® Double Cash Card
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Another time it makes sense to use a credit is when you’re trying to meet a huge minimum spending requirement. Let’s say you have a $4,000 tax bill coming up and sign up for the Chase Sapphire Preferred card right before it’s due. To pay your tax bill using Pay1040.com, you would incur a $74.80 fee. However, you would earn 50,000 Chase Ultimate Rewards points in return. While these points are crazy lucrative for travel, they’re worth a minimum of one cent each when redeemed for cash or high-value gift cards. So, those 50,000 points are easily worth $500 or more. And since the $95 annual fee on this card is waived the first year, you’ll still let at least $425 out of value out of the deal.
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Chase Sapphire Preferred® Card
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$0 intro first year
$95 annual fee |
Earn 50,000 bonus points when you spend $4,000 on purchases in the first 3 months from account opening. That's $625 in travel when you redeem through Chase Ultimate Rewards® Read Review » |
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Chase Sapphire Preferred® Card |
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The Bottom Line
Whether or not you should pay your taxes with credit depends on your individual circumstances. If you signed up for a card with a large minimum spending requirement and need help getting there, paying quarterly taxes with credit can pay off. And if you’re using a card that earns more than the percentage you’re charged (at least 1.87 percent), you can easily end up ahead.
Under other circumstances, using credit to pay your taxes may not make sense at all. Also remember this advice is predicated on the idea that you’ll pay the balance of your tax bill in full right away. If you wind up paying credit card interest on your tax bill, you’ll end up in a world of hurt.
Have you ever paid taxes with a credit card? Why or why not?
[Image via Getty]