Update 3/18/24: PayUSA is now 1.82% (was 1.85%), debit cards now $2.14 (was $2.20).
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 1.85% to 1.98%), 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 Cards | Credit Cards | Digital Wallet | |
---|---|---|---|
Pay1040.com | $2.50 flat fee for consumer/personal cards and 1.87% for all other debit cards (minimum $2.50) | 1.87% (minimum $2.50) | See debit/credit card fees |
PayUSAtax.com | $2.14 flat fee | 1.82% (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 2.9% for Visa, Mastercard, Discover or Amex.
Making It Worth It
High Cash Back/Rewards Cards
As you can see, payUSAtax is the cheapest option at 1.85%. Even if you used a credit card that earned 2% (e.g Fidelity Visa or Citi Doublecash) you’d only be making 0.15% profit. Even if you had to pay $10,000 in taxes, you’d be earning $200 in rewards but having to pay $185 in fees for a profit of $15. 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 4/17/23: Reposting with Tax Day being tomorrow.
- Update 1/16/23: A lot of people are experiencing issues with payUSAtax processing Chase business cards and other business cards. The workaround is to use Paypal.
- Updated for 2022/2023: Biggest change is payUSAtax is now the cheapest at 1.85%.
- 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 Superma
Pathward from Walmart does not work at any providers
Distributed by InComm? If so, that’s the same as Vanilla we’ve been discussing.
Pull it out from the trash can and confirmed yes. Never paid attention to distributors before.
Bought two Vanilla visa at walmart. One of the card worked. The other card did not work. Called and they sent a replacement card. Received the replacement card, it still does not work on pay1040 or payusatax. Will not buy Vanilla anymore.
Did you activate the replacement card ? Does it work anywhere else ?
Yes, it is activated, and it worked for in store purchase, it also worked on some online purchase. It is just not working for Pay1040 or the click to pay for Payusatax.
Ouch, looks like Incomm is blocking all tax processors now.
Bought a $500 Vanilla VGC from grocery store today. Declined for both PayUSATax and Pay1040. In the gift card transactions I can see both service fees of $2.14 and $2.50 being declined.
Were you able to register the card? If not, that could be the reason for the declines. You should try to use the card in-store before requesting replacement.
How do I register the card? I called and asked for a replacement or assign zip code, the CSR said cannot do because the card is active, and that I should just put my address.
There is no registration available for Vanilla.
Also ACI payment is not working either. GG.
I am no longer finding any UFan cards in my local SoCal area. Any trick on how not to make Vanilla get rejected and frozen on the first use ? Still have two months of the Shopyourway grocery promo to go this year, and it really starting to feel like a chore. Last two Vanilla VGC I bought had to be replaced with a call.
IRS says two 1040-ES per quarter. Does that mean I can’t split 4 x $500 to make my $1900 estimated tax payment (2 per processor)?
Yes, you can. Up to six is doable per quarter (3×2). Just be careful with what GCs are accepted by whom (see comments below).
Thank you. Not using Vanilla, which I know can be an issue.
What are you using, out of curiosity ? Other cards also have issues, like UFan cards are only accepted at two out of three.
Have mostly used Pathward that I get at grocery stores. Haven’t had an issue as long as I register them first.
Lucky. I am seeing only Vanilla’s in SoCal.
So I made a partial payment (PayUSA) by credit card to pay my estimated taxes and now, a couple days later, I’m trying to make the remaining by PayPal and the pop up flashes and disappears. Tried two browsers and same result. Any similar experiences or thoughts? Thanks!
Search “schedule” in these comments, there are a couple workarounds.
Thanks, other searches weren’t yielding much 😄
Let us know how it goes…I haven’t run into it myself yet but made a mental note for future reference, lol
No real luck with the info, most seems to be for Pay1040. I’m going to give it a couple weeks and try again. If it doesn’t work, I’ll go the VGC route to pay the remainder. A little more work but the result will be the same.
Celia There are also comments saying you can put a slightly diff ssn so paypal let you login then you need to go back and correct the ssn in order to make the second payment go through via paypal
Yeah, saw that. Last time I used PayPal though it went right through after I signed in, I don’t recall being able to change anything.
Just so annoying not to be able to make a second payment. I knew I would have an issue making a second PP payment, just didn’t consider that a first PP payment would happen. Lesson learned.
May work out anyway. I have a CitiSears offer for grocery spend that I can buy the VGC and pay it. Thanks for the comment.
This is a long-standing bug/feature of PayUSATax with PayPal. Here is one workaround: https://www.doctorofcredit.com/a-complete-guide-to-paying-your-taxes-with-a-credit-card/#comment-1306089
Thanks. I might give that a try.
Here’s another:
https://frequentmiler.com/pay-taxes-via-credit-card/#Pay_with_Paypal
Thanks. Tried it, no luck.
Never worked for me either, but check the comments on that page: https://frequentmiler.com/pay-taxes-via-credit-card/#comment-2350939
Yeah, saw those. Be easier if they just fixed the annoying bug. 🙂
Agreed, but I suspect it’s actually a feature. I bet their fees are higher if somebody uses PayPal versus a credit card directly, so it’s a dark pattern to try to discourage the use of PayPal.
Interesting thought. Thanks again.
payUSAtax only allows 1 PayPal transaction per quarter per SSN, not 2. If you try a second time, the PayPal window will never show up.
If you really want to do it twice, you have to do it at the same exact time. You can theoretically open two sessions at the same exact time (two browsers or 1 in a browser and the other in private window) and click pay at the same time. But there is a risk this won’t work as planned.
Thanks but I know they only allow one PP transaction, the issue I was having is that they don’t allow it as the second transaction, regardless of what payment method is used for the first.
Replacement Vanilla Visas received in the mail worked today both on Pay1040 directly and also for PayUSATax via Visa Click to Pay on first attempt for estimated quarterly tax. Good to see PayUSAtax working again after failed attempts earlier in the month.
Yep, Visa Click worked for me too on the replacement card. Thanks for giving me the heads up !
I tried to use the Vanilla Visa (not a replacement) on PayUSATax as debit today and was declined due to the zip code was not matched. Did you need to enter the zip code when using the replacement Vanilla Visa? My card is not blocked since I just used it to purchase a Costco cash card without issue.
For me, only replacement Vanilla Visas work on PayUSATax via Visa Click to Pay since your own zip code is assigned in the mailing process. Was successful again yesterday on a replacement card.Store bought ones don’t work directly.
If the replacement card has the zip code assigned, then you shouldn’t have to use Click to Pay.
So it sounds like the ones bought in physical stores do not have zip code assigned, while the ones bought online or replaced have zip code assigned, and the zip code need to be assigned in order to work on the tax payment sites?
Nope, I am pretty sure no Vanillas have zip code assigned – they never worked for me for processors that request zip code matching. The replacements are not bricked as easily so they used to work at e.g. pay1040, but it seems that even that might be over. No Vanillas ever worked for ACI this year afaik.
The UFan version worked with ACI as of the end of October. No idea if that still works.
how do you request replacement card for vanilla card? the card is still active after the service fee of $2.14 and $2.5 being declined at both payusatax and pay1040.
do you just call in or have to give rationale?
Yes, call the phone # on the back of the card and then select the option for “issues with card” or something like that. Then explain to them that you tried to use it and it doesn’t work so you’d like a replacement.
Did they decline the transactions but still charged the service fee? Does the card work at other places?
No, the fee is also not charged if the payment is declined. It goes from pending to dropping off.
Good to know. At least they did not decline the transactions but charged the fees.
Wanted to confirm the report below (https://www.doctorofcredit.com/a-complete-guide-to-paying-your-taxes-with-a-credit-card/#comment-1912952) that INCOMM’s UFan MCGCs (https://www.ufangiftcards.com/), which are sold at many stores that also sell Vanilla VGCs, are accepted not only by Pay1040 but also ACI Payments.
I was too chicken to try them on PayUSA in light of the reports below that Vanilla VGCs were being blocked after attempted payments on PayUSA (https://www.doctorofcredit.com/a-complete-guide-to-paying-your-taxes-with-a-credit-card/#comment-1911949). Maybe someone else can provide that DP.
Just an FYI paypal is one of the chase freedom q4 bonus cats. Not quite the payoff the staples fee free visa’s get you with ink (about 1% less if my math is right), but less work.
Anyone recently used by VGC purchased from the grocery store to pay tax successfully? If so, which provider did you use? thanks
Pay1040 worked for me yesterday, but most Vanilla VGC in my experience are requiring a call for a replacement and being silently blocked.
If it’s a Vanilla Visa, it seems that only Pay1040 accepts them. I tried PayUSATax with Visa click-to-pay this week and it didn’t work. If you’re talking about non-Vanilla Visas that you can register, all three processors accept them. Around me, the only supermarket that sells these is Lidl.