A Complete Guide To Paying Your Federal Taxes With A Credit Card, Updated For 2021/2022

Updated for 2021/2022. Pay1040 price has decreased from 1.99% to 1.87% for credit & debit card payments. ACI payments has also increased debit card payments to $2.20 from $2

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 & ACI Payments (formerly 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 1.9% 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 1.96% to 1.99%), those fees are what we look at first. We’ve also included the fees for debit card payments and digital wallet payments.  According to Way Back Machine, the fees have been very similar for awhile now (actually mostly getting slightly cheaper since 2012).

 Debit CardsCredit CardsDigital Wallet
Pay1040.com$2.58 flat fee for consumer/personal cards and 1.87% for all other debit cards (minimum $2.50)1.87% (minimum $2.58)See debit/credit card fees
PayUSAtax.com$2.55 flat fee1.96% (minimum fee $2.69)See debit/credit card fees
ACI Payments (formerly OfficialPayments.com/Fed)$2.20 flat fee ($3.95 for payments over $1,000)1.98% (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 2.85% for Visa, Mastercard, Discover or Amex.

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

Update 2018/2019: Looks like 2%+ miscellaneous deduction option is gone effective 2018.

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.

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:

Post history:

Update: We’ve updated this post to make it relevant for 2020, hope you enjoy! One thing to note is that the IRS is no longer prevented from fees for processing credit/debit cards directly under 26 U.S. Code § 6311(d)(2) as amended. This won’t make a difference for this tax year, but might make things interesting for 2021. Hat tip to reader Superman

 

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anita
anita

Set your statement date to the 14th and pay taxes on the 15th each time to maximize your float

mangorunner
mangorunner

PayPal’s FAQ on tax payments, “How do I pay my federal income taxes with PayPal?”, explicitly states:

“Note: payUSAtax.com charges a convenience fee of 1.96% for payments paid with PayPal.” (https://www.paypal.com/us/smarthelp/article/how-do-i-pay-my-federal-income-taxes-with-paypal-help539
The statement is located is right below Items 1, 2, and 3.)

Does that mean that the other processor that accepts PayPal, ACI Payments, Inc., does not charge a convenience fee for PayPal payments?

Queue_Underflow
Queue_Underflow

I wish. They charge 1.98%. Probably just forgot to update when ACI started taking PayPal about a year ago.

Yu
Yu

Anyone used the Vanilla Visa GC(email delivery) from VanillaGift.com to pay via one of the 3 processors recently? Should it work? Thanks,

20201103
20201103

With pay1040, don’t bother creating an account, or if you do, don’t login, just abandon it.

When logged into the account, there’s no way to make a payment today. You have to enter some details, and schedule a future-dated email to “remind” you to come back and complete the rest of the process. This turns the supposedly simple act of making a payment into a multi-day process, which is absurd. It’s unbelievable that they set it up like this.

Outside the account (not logged in) you can simply make a one-off payment. There are some details to enter, but if you’re organized with the info to cut and paste, you can do it in a few minutes.

If anyone thinks my description of the pay1040 account is wrong, then tell me how to quickly and simply make a payment when logged into the account, and say what are the advantages of using the account.

lilurbanachiever
lilurbanachiever

I log on to my account, click on make a payment, reenter all my info and my payment is processed right away, at least my CC is charged right away. Maybe you are choosing schedule a payment, not make a payment ? In general, those accounts are indeed not very useful because I have to reenter all my info each time.

20201103
20201103

I used “make a payment” when not logged in, and that option works properly.
I now realize you can also use “make a payment” when you are logged in, but there seems to be no point to being logged in (right?).
The additional features that you can get to by being logged in seem to be useless, even crazy.
Is there any reason to ever use the login account?

jd
jd

no, i never created an account anywhere. just save the email receipts and track them on the eftps site

20201103
20201103

Thanks.

Celia
Celia

Is US Bank biz cards not usable to pay estimated taxes? Anyone have experience with this?

Raj
Raj

Where did you see this?

Celia
Celia

Tried to pay my estimated taxes (left over after the 1500 via PP) and it said that that card could not be used or something to that effect. Had never tried with a US Bank card (Triple Cash biz).

Just tried again, it says: This card type is not currently accepted. To attempt your payment with an alternative method, please use a different card type or select another payment option under the Payment Information section below.

lilurbanachiever
lilurbanachiever

Hmm, worked for me about a month ago. Have you tried another service processor ?

Celia
Celia

No, I haven’t. I try to keep it all on one. I only use cc to pay taxes for when there’s PayPal or I need to do a sub. Some of you all are way better at it than I am. 🙂

I did run across a reddit post that they couldn’t use a Chase biz card so I thought maybe it was just biz cards. It’s not much for this round so maybe I’ll just use another card. Thanks for the suggestion.

lilurbanachiever
lilurbanachiever

I’ve had a similar problem before, a MGC was not processing as debit at one of the processors but worked fine at another one. They are not the same. Oh, and payusatax presumably does not have a good customer support as opposed to the other two, just fyi.

Nguyen
Nguyen

FYI You can make a total of 40 online payments per tax year:
1) 28 payments using the Form 1040-ES over 5 periods:
– 03/01 – 05/14
– 05/15 – 07/14
– 07/15 – 10/14
– 10/15 – 12/31
– 01/01 – 01/31 (available on PayUSAtax and ACI Payments only)
2) 6 payments using the Form 1040 before the deadline 04/15
3) 6 payments using the Form 4868 before the deadline 04/15

CSF
CSF

Tried making 2nd payment on Payusatax and paypal not working. Has this issue ever been solved?

Eric

As far as I know, they only allow 1 PayPal payment per quarter now. I don’t think it goes by calendar quarter though. I think someone posted the 4 periods in this post at some point.

Yu
Yu

This quarter, Discover has 5% for Digital Wallet. Anyone knows if we can pay IRS via Google Pay?

Original Jack
Original Jack

No GP or AP. The processors seem to have PayPal and Click to Pay options as digital wallet payments. Whether Discover considers them digital wallet is the question.

Sergei
Sergei

Citi just charged me a $10 cash advance fee on the service fee that it coded as cash advance when I paid 1040-ES with ACI Payments. Wow.

Sergei
Sergei

I don’t know if it’s the Citi, Citi + Paypal, or Citi + Paypal + ACI Payments thing. This never happened to me before but I normally used Discover or Chase Paypal 5% offers and used PayUsaTax service. This time around I had a 5% Paypal offer on a Citi card. PayUsaTax still has that bug that doesn’t let you do the 2nd Paypal payment in a quarter where you already did the 1st. So, decided to do it with ACI Payments. Somebody codes something wrong somewhere. Citi blames Paypal or the merchant. I should get the fee reversed as a one time ‘courtesy’ – we’ll see. This gives me a pause for any similar future opportunities.

lilurbanachiever
lilurbanachiever

I think Citi is now cracking down on their own Paypal promo. On my recent paypal bill payment with citi I was awarded a whole 1 point, instead the usual 5×80 or so.

Yu
Yu

Too bad. Is it the IRS payment or the bill payments for other merchant?

Raj
Raj

It’s Citi’s shenanigans. Citi has been doing this since early 2020. Basically, do not use Citi cards on PayPal.

Terry
Terry

Anybody else getting this message when trying to access the PayUSATax.com website?

Error 525 SSL handshake failed

lilurbanachiever
lilurbanachiever

They are using cloudflare or something. But I can log on fine and looks like the payment went through.