Posted by William Charles on January 20, 2017
Credit Cards

Published on January 20th, 2017 | by William Charles

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A Complete Guide To Paying Your Federal Taxes With A Credit Card, Updated For 2017

Update: We’ve update this post to make it relevant for 2017, hope you enjoy!

It’s that time of the year again, time to pay taxes! For a lot of people, this is their biggest expense of the year and wouldn’t it be great if you could pay your taxes with a credit card? Well as the IRS website clearly states, you can.

Disclaimer: We’re not accountants, this does not constitute tax advice. Please consult a tax professional.

The Basics

The Tax Payer Relief Act of 1997 allowed the IRS to accept credit & debit card payments (under section 6311(a)) and payments were able to made from January 1st, 1999 onwards due to this temporary act. The IRS has authorized three third party providers to process tax federal taxes on their behalf: Pay1040, PayUSAtax & Official Payments. The reason why the IRS doesn’t process credit cards directly is they are forbidden from charging fees directly for these services due to other federal laws. None of the money these providers collects goes to the IRS and some of these providers can also be used to pay State taxes (we’ll cover this in another separate post).

In this guide we’re going to assume you have the cash to pay your credit card in full, if you don’t have the ability to do this then paying with a credit card is a terrible idea due to the high interest rates credit cards charge. If you can’t pay in full then you’ll most likely be better off with a payment plan/installment agreement with the IRS, more information on this can be found here.

Obviously all these third party providers charge fees (ranging from 1.87% to 2%), those fees are what we look at first.

Another option is to use the Plastiq bill payment service. Plastiq allows paying any bill, including tax payments, with a credit or debit card.

Fees

Obviously all these third party providers charge fees (ranging from 1.87% to 2%), those fees are what we look at first. We’ve also included the fees for debit card payments and digital wallet payments (who knows when another Discover pay promotion will come around). These fees are valid through December 31st, 2017. According to Way Back Machine, the fees have been very similar for awhile now (actually mostly getting slightly cheaper since 2012). Official Payments reduced their credit card fee from 2.25% to 2% and increased the flat fee for debit cards to $3.95 for payments over $1,000 2017, PayUSAtax also reduced theirs to 1.98% from 1.99%. PayUSATax kept their fees flat.

Debit CardsCredit CardsDigital Wallet
Pay1040.com$2.59 flat fee1.87% (minimum $2.59)See debit/credit card fees
PayUSAtax.com$2.65 flat fee1.98% (minimum fee $2.69)See debit/credit card fees
OfficialPayments.com/Fed$2.25 flat fee ($3.95 for payments over $1,000)2% (minimum $2.50)See debit/credit card fees

There are higher fees if you use any tax preparation software, those can be viewed here.

As for Plastiq, the standard fee is 2.5% for Visa, Mastercard, Discover or Amex. Currently, there’s an offer on Amex and possibly Mastercard to pay just 2%.

Making It Worth It

High Cash Back/Rewards Cards

As you can see, Pay1040 is the cheapest option at 1.87%. Even if you used a credit card that earned 2% (e.g Fidelity Visa or Citi Doublecash) you’d only be making 0.13% profit. Even if you had to pay $10,000 in taxes, you’d be earning $200 in rewards but having to pay $187 in fees for a profit of $13. Not exactly worth it. Now if we could reduce our fees, then we might be onto something.

Claiming The Fees On Tax

On the IRS page you’ll notice the following (emphasis mine):

The fees vary by service provider and may be tax deductible

Personal Taxes

Nothing like something vague and ambiguous to give to confidence that you can claim these fees as a deduction. In 2009, the IRS introduced a new law that allows some people to deduct these expenses when you file electronically. You can view their statement on this on the official IRS website. Here is what you need to be aware of:

  • Convenience fees associated with payment of federal tax can be included as a miscellaneous itemized deduction
  • Only those miscellaneous expenses that exceed 2% of the taxpayer’s adjusted gross income can be deducted

You can view what the IRS considers a miscellaneous expense here. But for most people I doubt they will exceed 2% of their adjusted gross income. So there goes that idea.

Business Taxes

Things are a little clearer for business taxes, they state:

  • For business tax types, the fee is a deductible business expense.

Meeting Minimum Spend Requirements

As easy manufactured spending methods dry up, more and more people are happy to pay a fee to meet minimum spend requirements. That’s because they usually have large sign up bonuses relative to the minimum spend requirements.

Splitting Payments

If you owe $10,000 in taxes, then chances are you don’t want to be paying $187 in fees just to meet one minimum spend requirement (especially since most of them only require ~$3,000 or less in spending). Thankfully the IRS allow you to split your payments up, how many times you can do this depends on what sort of tax you’re paying. They provide a full table here.

If you use Plastiq, there is no limit to the amount of payments you can make. You’ll pay with a card, but each payment will be sent to the IRS via mailed check. The limits given by the IRS are only for card payments, not check payments.

Our Verdict

I think paying your taxes with a credit card is generally not worth the effort involved, unless you want to meet a minimum spend requirement and are happy to pay the fees involved. Even using a 2% card doesn’t net much profit unless you have a massive tax bill. Liquidating prepaid gift cards could still be worthwhile for some.

Feel free to ask other questions below and I’ll update the F.A.Q as we go along. Also remember that we’re not tax professionals, please consult with one of them relating to anything tax related.

F.A.Q’s

Do Any Credit Cards Code Any Of These Sites In A Bonus Category?

Your payment will be broken down into two different payments:

  • Your actual tax payment will show as “United States Treasury Tax Payment”
  • The convenience fee charged will show as ” Tax Payment Convenience Fee”

As far as I know no credit cards will earn a category bonus on this purchase. It’s possible that they do.

Can I Use Visa/Mastercard/American Express Gift Cards To Make A Payment?

Some people have had success in doing this in the past, apparently Official Payments allows you to use more than two debit cards when paying over the phone. Just keep in mind you’ll be paying a $2.25 fee per card. I have no idea if this still works or not.

The best route for multiple gift cards is to use Plastiq who allows gift cards to be used at their standard 2-2.5% fee. If you have ten $500 gift cards, make ten separate payments of ~$490 each and a separate check will be sent to the IRS for each one.

Will I Be Charged A Cash Advance Fee?

As far as I’m aware, no major credit card issuers charge a cash advance fee. This is confirmed by the websites of each of the payment processors:

 



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93 Comments on "A Complete Guide To Paying Your Federal Taxes With A Credit Card, Updated For 2017"

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Feo
Feo

I just used payusatax to drain a VCG. Treated as debit, no issues, online. With grocery category bonuses, I basically came out even, but good way to drain VCGs post bluebird.

BN
BN

what about using the BBVA NBA card in a couple weeks. Would that be worth it?

Kent C
Kent C

Not a bad idea. BBVA Compass only allows $5,000 max spending per day regardless of your CL though. I had read about that, then called. They confirmed it was true but said they would be willing to do a 3 way chat for a larger purchase. Seems like a hassle. Hopefully your tax is <5K. No guarantee they will honor the 5x though if they want to play hardball on the merchant.

Gerald
Gerald

This year, the 5% BBVA bonus only applies to a max of $5000 per event, so you have one $5000 shot in February (the all-star weekend) and one in June (two weeks of the finals). Last year I used Pay1040 to file for an extension in February (since I didn’t have time to do my taxes) and then used it again in June to pay estimated taxes. If you want to max this out and you don’t owe taxes, you can always file for an extension, pay a lot more than you owe, and then get it back as a refund. Just because you filed for an extension doesn’t mean you can’t file before your taxes are due.

Robin
Robin

Good to know.

Robin
Robin

That’s what I’m thinking…

T
T

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Phil
Phil

Will I get the 1% cash back if paying with paypal business debit card?

joe
joe

was thinking the same about the paypal debit card.

DT
DT

I’ve been using PP debit for 2-3 years now.
Only 2 (Official Payments and PayUSATax will allow PP as a debit (remember max of $3000/day which makes it 12k per quarter plus final tax bill if any due).

Unfortunately, this quarter I did not get any 1% back while I was getting it from Official Payments on previous occasions.

Kevin
Kevin

IIRC PP made a change last year that only transactions processed as credit will earn the 1%. Coincidentally, this happened right as RadPad stopped allowing rent payments… you can guess the last time I used my PP debit card.

steve
steve

Depends on if it codes as Signature (yes) or Pinless debit (no).
Either way you’re losing 0.87%+

Jan B.
Jan B.

Because I max out a schedule A, the IRS didn’t believe me when I submitted 2014 1040. Recently, they asked for all my receipts and statements (mortgage interest, RE taxes). When I could not respond in a timely fashion (travel, records filed away, was also moving state to state), they sent me a balance due letter.

I sent them a check QUICKLY rather than muse over which CC to use. Cleared quickly. Now pursuing TAX advocacy route to get the $2K back.

But, with more time to think about 2015, I would consider the CC payment. Thanks for the article.

Robert
Robert

I tried to pay with the PayPal debit a couple years ago, but it doesn’t go through as debit. You would have to choose credit, which of course wipes out the potential profit.

savemesf
savemesf

Frequent Miler recently said you can make 2 payments through EACH of the 3 payment processors. I.e., you can make 6 payments each time (each quarterly estimated payment and when filing the return). Can anybody confirm this is correct? Seems like a fairly painless way to unload a few VGCs.

Jeff H
Jeff H

I have had a couple of 2016 quarters that I did 2x $500 (including fee) + Nebraska estimated $500 via Official Payments plus a maximum payment $500 (including fee) on pay1040. All in VGCs bought with 3% to 5% cashback cards = small discount

Harold
Harold

I made two payments through pay1040 for estimated tax and then one with payUSAtax. All three were reported the same way on the IRS EFTPS website. So I can confirm that more than two payments work.

Mark
Mark

I’m getting 3% back this year with discover it miles

Aks
Aks

I am incline to use Discover but worried if later they change the terms to exclude tax payments the way they have excluded Gas purchase at superstore at the end of promotion date.

Peter
Peter

Please elaborate or provide additional sources for your statement of ” the way they have excluded Gas purchase at superstore at the end of promotion date”.

trackback

[…] A complete guide to paying your Federal taxes with a credit card. Good info here. I miss My Vanilla Debit card so much   Or you can keep it simple and pay directly on the IRS website with its Direct Pay feature. Expect to see more online services provided by your friendly IRS in the future. […]

Jonathan
Jonathan

VGC is good but too much trouble.

I used to pay paypal debit as debit a couple of years ago. I paid $2997.41 + $2.59 fee = $3000.00 ( the maximum value paypal allowed).

After I was afraid of paypal shutdown. I used AMEX gift card to pay instead since I could get 4% or more back from AMEX gift card.

Nowaday I will either use paypal again for credit ( I still have 2-4 % profit since I purchased with obc) or I will use 2.625% BOA travel to pay for it.

Chris

Man I wish I knew about this last week. My City linked to Official Payments an didnt mention the others… To ME, it was worth $45 to meet the Chase Ink Min Spend without much hassle. I would set it up next time to use Pay1040.com with a 2% card…. Even buying VGCs and doing it that way would be more expensive / not worth the hassle IMO.

David
David

What about using multiple (like many many) $300 visa gift cards to pay a tax bill well over $10,000?

Calvin
Calvin

Anybody pay taxes with the BBVA card?

If so, which third party provider did you use, what day did you pay your taxes, what day is listed as the “transaction date” on the BBVA card, and did you get 5% cashback?

Gerald
Gerald

See my comment above. I paid ASAP and got the bonus.

Jeff
Jeff

I am considering this for the current tax cycle due to an unexpectedly high tax due(5000+). My current thinking is Citi card with only 1% rebate but then turn around and BT using a competitor card for 18 months when billed. Citi’s 18 month BT 5% fee is nuts, My CL is okay to due one transaction especially when I notify Citi to expect a larger than normal charge.
IMO for me it will be worth it.

Dave
Dave

It seems OfficialPayments charges $3.95 (not $3.50 as you state) for debit card payments over $1000

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