How to Pay Federal Taxes with a Credit Card

It’s tax payment season again. If you already need to pay additional federal tax, consider using a credit card so you can also meet minimum spending requirements for a new card; if the processing fee is lower than the rewards you earn, you may even come out ahead. If you’re using a business card, it may also be worth checking whether paying via PayPal can reduce the fee even further. [Note] This article does not constitute tax advice. If you have tax questions, please consult a qualified tax professional.

About Paying Taxes

Paying taxes is something we deal with every year. If your automatic withholding was not enough, you’ll need to make an additional payment when you file your return; if you pay estimated taxes quarterly, you can also pay in advance. For many people, the amount owed to the IRS is not small. Paying directly from a checking account usually has no fee, but paying by credit card can help you meet minimum spending requirements and may even generate rewards that exceed the processing fee. This article focuses on how to pay federal taxes to the IRS with a credit card.
For this year’s filing and payment process and deadlines, see our tax filing guide. This article specifically covers how to pay taxes with a credit card.

Credit Card Payment Methods Accepted by the IRS

First, the IRS itself does not directly accept credit card tax payments. Instead, it supports the following two third-party payment processors. Their fees may change from year to year, and rates may differ for personal cards and business cards. You can also use these two websites to make estimated tax payments for upcoming taxes directly.

• Official IRS page

If you are already preparing your tax return, you can first calculate how much additional tax you owe for this year. Then make the payment with a credit card on one of the two websites and report it on your return as tax already paid. If you pay estimated taxes quarterly, try not to make the amount too far off; if you don’t want to calculate carefully, prepaying roughly what you owed last year is usually fine.

The actual fee should be based on the amount shown on the final payment page, since these two processors’ systems occasionally fluctuate. In addition to paying by credit card directly, you can also choose PayPal. If you use a business card, this can usually reduce the fee to 1.85%, which is better than paying by card directly.

Annual Limits on Number of Payments

The IRS explains the annual limit on the number of credit card payments for tax due on this page. You can make at most two credit card payments for tax due. For quarterly estimated tax payments, the limit is also at most two credit card payments per quarter. In practice, however, this rule is enforced separately by each payment processor, so using both processors above allows two payments with each, for a total of up to four. The IRS quarterly estimated tax deadlines are:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 of the following year

If you want to spread your tax payments across even more cards, the two processors above may not be enough. In that case, you can also use Plastiq bill pay to pay taxes without a payment-count limit, though Plastiq’s fee is higher, currently about 2.85%.

How to Pay “More” Taxes by Credit Card

First, it’s important to understand that your annual taxes are effectively split into two parts. One part is withholding based on your prior-year income and similar information. The other part is the final reconciliation when you file, comparing your actual tax liability with what was withheld, and then you either get a refund or pay the balance due. That withholding portion is deducted directly from your income, which is effectively a cash payment. So is there a way to turn that part into credit card spending too? Yes—by adjusting your W4 form.
Specifically, you can change your W-4 form so your employer withholds less tax. By default, your employer withholds federal income tax from your paycheck and remits it to the IRS. But if you want to control how you pay your taxes yourself—for example, by paying with a credit card—you can reduce withholding through the W-4 form. Practical tip: log in to the IRS Withholding Estimator tool to estimate your total tax for the year. On the W-4, in Step 4 (c) (Extra withholding), reduce or remove any extra withholding you previously entered. Then submit the updated form through your HR/Payroll system. Important: after you change your W-4, less tax will be withheld from your paycheck, allowing you to make your own quarterly estimated payments. Be sure to make those quarterly payments, because if you do not pay enough, interest may apply.
Also note that if you pay estimated tax quarterly, you still need to avoid penalties under the Safe Harbor rules. The IRS says you will not be penalized if you meet any one of the following:

• Last year’s income < $150,000, and this year’s prepayments ≥ 100% of last year’s total tax
• Last year’s income ≥ $150,000, and this year’s prepayments ≥ 110% of last year’s total tax
• In any case, this year’s prepayments ≥ 90% of this year’s tax liability

In addition, each platform allows 2 payments per tax type per year, for example:

• 1040 Balance Due
• 4868 Extension
• 1040-ES Estimated Tax

If you file jointly, your spouse can also make separate tax payments under their name, effectively doubling the opportunity.

Which Credit Cards Should You Use?

Best Cards for Everyday Spend

In theory, any credit card that earns more than the 1.75%/1.87% processing fee can generate a positive return. In today’s world of many 2%+ cash back cards, there are plenty of options. Tax payments generally do not qualify for bonus-category rewards, so it’s best to use a card that earns well on all purchases.

• Best credit cards for everyday purchases

With the Citi Double Cash credit card, you can easily earn 2% cash back. If you also hold a card in the Citi ThankYou Points family, the cash back earned from Double Cash can easily be converted into 2x TYP for potentially higher value.

The Capital One Venture X also earns 2x miles, which works out to an effective return of about 2.4%.

If you have the Chase Freedom Unlimited, you can earn 1.5x UR on the payment. If you also hold the Sapphire Reserve, that 1.5x UR can be worth at least 2.25%.

If you have a newly opened / card from within the last year that includes the first-year cash back match benefit, you can use these two cards to earn 2% or 3% back.

If you prefer AMEX Membership Rewards points, the Blue Business Plus earns up to 2x MR on the first $50,000 in purchases each calendar year. For readers who have this business card, it can be a better option than Double Cash and Freedom Unlimited.

Note that the following cards do not earn rewards on tax payments, and may even be declined by the card issuer:

• Robinhood Gold Card: 3% cash back on all purchases “Hands-on experience: an absolute monster card”
• US Bank Smartly credit card (4% cash back card)

Meeting Minimum Spend for Welcome Bonuses

Of course, beyond earning a small return slightly above 1.87% through everyday rewards, a more sensible use may be to pay taxes in order to complete spending requirements for sign-up bonuses and various annual spending bonuses. There is no need to elaborate on sign-up bonuses. Annual bonuses include many benefits that credit cards offer after reaching annual spending thresholds, such as free hotel night certificates and elite status. For example, the Hilton Aspire gives a weekend free night certificate after $60,000 in annual spending, and the Chase Ritz-Carlton offers Marriott Platinum status after $75,000 in spending, among others.

• Best US credit card sign-up bonuses (personal cards) [updated monthly]
• Best US small business credit cards [updated monthly]

In particular, some credit cards with large minimum spending requirements are especially suitable for tax payments.

• If you have a large expense coming up, which credit card should you apply for?

No matter which of the above credit cards you choose, the return is always better than paying directly from a bank account.

FAQ

Q: Will paying federal taxes with a credit card be treated as a cash advance?
A: No. Both payment processors and Plastiq code tax payments as purchases.
Q: Can I intentionally overpay my taxes with a credit card and then get a refund?
A: In theory, yes. The author once accidentally overpaid by a few hundred dollars, and the IRS quickly mailed back a refund check. That said, we do not recommend doing this intentionally. Unless you are about to receive a refund right away, you would also give up interest or investment returns. But if you have a lot of minimum spending to complete, this method can still work. Also, if your credit card earns more than 2% back, then in theory paying taxes can be profitable.
Q: Do I need to mail my online payment receipt to the IRS?
A: No. If you file by mail, including it would not hurt, but if you use tax software or file online manually, it is unnecessary.
Q: If I use tax software, how should I indicate the payment method?
A: Just choose pay by check. From the IRS’s perspective, this choice makes no difference, as long as it allows the software to keep generating the tax forms.
Q: Can the processing fee be deducted as an itemized deduction?
A: According to IRS Publication 529,

Tax preparation fees on the return for the year in which you pay them are a miscellaneous itemized deduction and can no longer be deducted. These fees include the cost of tax preparation software programs and tax publications. They also include any fee you paid for electronic filing of your return.

Individuals can no longer deduct tax preparation costs, including tax software and other electronic filing fees, but businesses can still deduct them when filing business taxes.
Q: Can I use Visa gift cards?
A: Yes. Both Visa gift cards and Mastercard gift cards can be used, and they receive the debit card fee treatment. However, because of the limit of at most four payments, you can only use up to four Visa gift cards. If you have Visa gift cards with especially large balances, it may be worth considering; otherwise, it’s probably not worth the trouble.