Should you use a credit card to pay your tax bill this year?

So you filed your taxes, but instead of getting a refund this year, you actually owe the IRS a lot of money. If this is your first time getting into debt, you might be shocked. But there could be a number of reasons why you owe money for the first time, including if you earned a side job last year, didn’t pay estimated taxes, or if you’ve earned a lot of interest on your savings account due to high interest rates.

If you have a tax bill to handle, you may be wondering whether it makes sense to pay using a credit card. The answer is that it depends on how much you have to pay and what benefits the credit card offers.

There may be benefits to paying your taxes with a credit card.

If you have a tax bill, you can pay it in full. This means that there is money in the bank to cover 100%. You can then pay those costs by crediting them to your credit card. Please note that the IRS charges a fee for paying your tax bill with a credit card, which ranges from 1.82% to 1.98%. However, if your credit card offers at least 2% cash back, you can use it to get ahead. (Sure, you don’t earn much cashback, but it’s something.)

If you recently got a new card and are trying to meet the spending requirements to receive a sign-up bonus, it may make sense to use a credit card to pay your tax bill. Let’s say you get a new credit card on April 1st. Then, if you spend $3,000 within three months of opening the card, you’ll get $150 back. Typically, if you’re only charging $800 a month, you’ll be slightly short of your goal. But if your tax bill is $750 and you can get enough cash back to cover the IRS fees you’ll pay on a credit card, it may make sense to use that card to meet your spending requirements.

Don’t use a credit card if you can’t pay in full.

If you have the money to pay your tax bill in full, it may make sense to charge it to your credit card. However, if you have to cover that balance, you may not be able to pay using your credit card.

Let’s say you owe $2,500 and your credit card is charging 24% interest. If it takes 18 months to pay off the balance in full, that’s $502 in interest alone. So in this case, it may make more sense to sign up for an IRS payment plan.

Now, if you choose an IRS payment plan, you’ll be charged interest and penalties on your tax bill until you pay your taxes in full. However, you may not be able to pay your credit card charges.

For example, as of this writing, the interest rate the IRS charges on unpaid bills is 8%. However, if your credit card bill is three times higher, it may be better to use the IRS.

Plus, credit card interest is compounded daily, so interest can add up quickly. The IRS charges interest compounded quarterly on unpaid tax bills, so interest won’t accrue as quickly, except at low interest rates.

The IRS also imposes a penalty of 0.5% for late tax payments on a monthly or monthly basis, up to a maximum of 25%. Those fines are not waived when you start a payment plan.

However, if your balance is $2,500, it will initially be $12.50 per month. Technically, 18 months of $12.50 fees is $225. However, this assumes you pay the full penalty each month, which is not the case. Instead, you will pay the balance according to your payment plan, which may reduce the principal amount on which the penalty is based.

All said and done, I used my credit card to pay my tax bill. could do It’s understandable, but it may not be the best option for you. Run the numbers to see which payment method costs you the least.

NOTE: Our top-tier cashback cards now offer a 0% introductory APR through 2025.

This credit card isn’t just good. A truly outstanding card that our experts use personally. Features a long 0% intro APR period, cash back rates of up to 5%, and no annual fee! Click here to read the full review for free and apply in just 2 minutes.