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

Updated for 2021. The major change was Pay1040 increasing fees from 1.86% to 1.99% for credit card payments, making it no longer the cheapest option.

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 1.99% for all other debit cards (minimum $2.58)1.99% (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)$2.00 flat fee ($3.95 for payments over $1,000)1.99% (minimum $2.50). AmEx over $100,000 is 1.9%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, PayUSA is the cheapest option at 1.96%. Even if you used a credit card that earned 2% (e.g Fidelity Visa or Citi Doublecash) you’d only be making 0.04% profit. Even if you had to pay $10,000 in taxes, you’d be earning $200 in rewards but having to pay $196 in fees for a profit of $4. 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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David
David

Do you guys know when we could start making a payment for 2nd quarter and for the rest of remaining quarters? I am trying to pay for 2nd right now but it says I already reach the limit of 2 (which I think from the 1st quarter).

Chicagoan33
Chicagoan33

Hi if I filed an extension for 2020 (will be getting a refund) do I have to wait until after May 17 to file my taxes or I can still efile before May 17, 2021? Also I need to make 3 more form 4868 extension payments for 2020 to meet SUB’s. Should I wait a week after making those extension payments to efile? Thanks! Will be getting a massive refund lol

Lia
Lia

Please help with any or both of the following questions:

1. When paying tax with credit card, when is the credit card charge posted? Does it wait until IRS process it or does the charge post next day? I am asking as I have a sign on bonus due May 4th. If I pay my tax now, would the charge be posted before May 4th?

2. I am filing tax return with Turbotax. I see paying with credit card through Turbotax has a higher fee. I’ve never paid tax with credit card. I wonder how to pay tax with another (like ACI) when e-filing with Turbotax?

lilurbanachiever
lilurbanachiever

Lia
1. The charge should post within days, as with any other cc charge. You are charged right away.
2. I always pay with my bank account via TTax or HRB, so no idea there. But I think you still have an option of paying what you owe via ACI even after you file with Turbotax.

Ferris
Ferris

I filed 3/5 and IRS Refund still says “processing”. I threw in a few Sign-up bonuses that I paid on 2/25 as Current Tax Due so refund was over 10K as it was the last few years. I was expecting to wait a month, but I’m well past that. Anyone have similar issues?

lilurbanachiever
lilurbanachiever

https://www.cbsnews.com/news/tax-refund-delay-irs-manual-processing/
Presumably, last year some people had to wait at least until this January, i.e. for almost a year.

MisterBill
MisterBill

I recalled reading somewhere that you could get around the limit of two payments per processor per quarter by making payments using the spouse as the primary. I don’t see it mentioned, so perhaps I am mistaken. I made two payments through ACI but need to pay another $500. Will I have to use Payusatax at the slightly higher rate?

tuphat
tuphat

Another difference between the three payment processors (in addition to treatment of Jiko debit card):

ACI fka Official Payments has superior dashboard for locating/verifying past payments. The other two processors require amount and L4 card number to look up past payments, even if you have an account with them. Completely lame, when I have forgotten the amount! ACI has more traditional dashboard, with history going back to at least 2015.

tuphat
tuphat

FYI & FWIW, for anyone using Jiko 1% debit card to pay taxes — Of the three payment processors, I could only get payUSAtax to recognize this as a debit card (vs credit card, which kills the deal). Might have something to do with Jiko clearing on the Discover network.

MisterBill
MisterBill

That’s interesting, because I just came here to report that PayUSATax would not accept my Mastercard gift card from Blackhawk as a debit card. It worked fine at ACI and Pay1040.

Anton
Anton

Worked fine for me as well. I paid more than a month ago though.

MisterBill
MisterBill

Just used a couple of $500 MC gift cards bought last night at Stop & Shop for estimated tax at ACI. Seemed to be the best deal, just paying $2 per card vs. higher rates from the other services.

Need to pay NYS as well, but they charge 2.25% for credit as well as debit cards, so I’ll probably just use my BofA Premium Rewards card, although I do have some $50 and $100 cards from Acme and there is no minimum fee, it seems.

Burton

FYI – I efiled and received my refund already, minus payments made in 2021. I’ve never seen this before but assume I’ll get a second refund later for the rest later. All payments are showing up on my IRS “Your Tax Account” and were there when I submitted the efile a couple weeks ago. My estimated payments made using GC & CC in 2020 were all credited properly and helped me get a trivial normal refund but I also should have received an extra amount related to extension payments made in Feb.

Tldr; don’t pay more than you can afford to float as you may not get it back before the cc bill comes due.

tripleM
tripleM

Please let us knowhow things go with them shortchanging you on the refund for 2020 ES payments made in Jan. 2021. I made one 2020 ES payment in January of 2021, so I will probably be in the same boat as you.

Burton

Will do, I found a few similar DP on reddit last night as well that had the same situation with partial refunds received or just not receiving a refund yet despite efiling weeks ago when 2021 q4 and or ext payments were what should have driven the refund.

I’m not too worried about it as they and I have record of the payment and I made the ext payment on a single current credit card, not random VGCs if for some reason they try to refund it to the card. Also, if they drag their feet beyond 4/15 they’ll pay 3% interest on the balance, so I got that goin’ for me… which is nice.

George
George

You will receive total consciousness

tripleM
tripleM

Sent in my final 2020 estimated payment on Jan.4, 2021. eFiled – accepted by IRS on March 19, 2021. Just logged in now. My refund is scheduled to be sent April 13. Strange thing, my refund is $1.38 more than what I filed for. There are no messages to me yet explaining the extra money. Maybe because they are taking well over 21 days, and paying me interest? Maybe there was some tax law change that was not contemplated in my version of H&R Block program, and they fixed it?

tripleM
tripleM

Got a letter from the IRS regarding getting an extra $1.38 refund… For my estimated payments, every quarter gave a round-down error against me since the H&R Block software does not allow cents to be entered for ES payments. The IRS fixed that by using their actual payment numbers instead of the truncated values H&R input. Thank you IRS for fixing H&R Block’s crappy software.

lilurbanachiever
lilurbanachiever

@Burton
So you did not do the 1040ES payments but the extension payments ? Is that the problem ? Thanks.

Burton

lilurbanachiever I did make a small Q4 est payment in December but they seem to be holding my larger extension payments made in Feb as my account has a credit balance of exactly the sum of my extension payments. My transcript has a “570 Additional Account Action Pending” dated earlier this week that came and went without changing (same on 3/24 transcript as it is on today’s).

George
George

Has your transcript changed or have you received a full refund?

Morris
Morris

I am in the exact same boat as you. Received refund for my estimated tax payments only. Other 1040 payments are showing as credit balance.

MisterBill
MisterBill

Very disappointing that Pay1040 raised their fee. You’d think at least they’d make it 1.96% to be the same as Payusatax. Who’s going to use them now, except people who used them before and didn’t notice? Or maybe people who need to make extra payments. I’ll certainly switch, I had already used Payusatax for PP payments when that was a 5% category.