Can You Pay Taxes with a Credit Card?

While it is possible to pay your taxes with a credit card, that doesn’t necessarily mean you should. There are benefits and risks associated with using your credit card to pay your income tax bill. 

Using your credit card to pay your taxes can help you avoid IRS late payment penalties or earn cash back rewards on your credit card. However, if you fail to pay your credit card balance on time and in full every month, you can quickly rack up fees and interest charges. Discover® waives your first late payment fee, but not all credit card issuers do, and you’ll still have to pay interest.   

It’s a good idea to consult tax professionals before paying your taxes with a credit card. But here are some basics to consider when weighing the potential benefits and risks. 

What types of taxes can you pay with a credit card?

You can use your credit card to pay your federal income tax and, in some states, your state income tax. It’s even possible to pay property tax with a credit card in certain places. Check with your state, city, or county to see what taxes you’re eligible to pay using a credit card.

Keep in mind that the IRS limits the number of times you can pay with a credit card each tax year. In many instances, you can only use your credit card to make a tax payment twice a year, but the number varies based on the type of tax.

Benefits of using a credit card for a tax payment

Making a tax payment with a credit card may offer several benefits, provided you can responsibly manage your credit card balance.

You can avoid late payment penalties from the IRS if you pay your taxes on time.

If you don’t have the funds to pay your total tax bill, you can use your credit card to ensure you pay on time and avoid late payment penalties.

You could earn cash back rewards on your credit card purchases

Using your credit card to help with a tax payment may let you earn cash back rewards. Before deciding, you can determine whether the overall rewards you’ll get using your rewards credit card are higher than the processing fees you’ll pay if you charge your taxes to a credit card. 

Using a new credit card may offer extra credit card rewards to cardmembers. With Discover Cashback Match, you get an unlimited dollar-for-dollar match of all the cash back you earn at the end of your first year, automatically. There is no limit to how much we’ll match.¹

You can manage your cash flow by paying your taxes over time

Using a credit card to pay your income taxes can also help you manage your cash flow. Instead of paying a lump sum of cash at once, you can spread your payments out and budget for other expenses in addition to your tax bill. 

Risks of using a credit card for tax payments

While paying your taxes with a credit card can be a convenient way to meet your tax obligations, it also carries some risks.

You’ll pay processing fees

When you pay your federal tax bill with a credit card, you’ll need to use one of three payment processors: ACI payments, Inc., Pay1040, or payUSAtax. Each charges a processing or convenience fee based on your payment type. Even paying with a debit card requires a fee. However, debit card fees are typically flat and lower than fees associated with credit card payments.

You may accrue interest for the unpaid balance

If you pay your taxes with a credit card and then fail to pay off your purchase balance by the due date each month, you may accrue interest charges.

Your credit score may drop due to high credit usage

If you pay your taxes with a credit card and then fail to pay off your purchase balance by the due date each month, you may accrue interest charges.

Your credit score may drop due to high credit usage

Your credit utilization ratio represents how much of your total available credit (loans, credit cards, etc.) is in use and accounts for 30% of your credit score. Experts recommend keeping your credit utilization ratio below 30%. For example, if you have $1,000 in available credit, you want to aim to keep your balance below $300.

Weighing your tax payment options

So, considering all the factors, what is the best way to pay your taxes? If using credit is the only way to pay your taxes on time, a rewards credit card may be the best resource. However, if you can pay on time using the cash in your bank account, you may want to go that route to avoid processing fees and potential interest.

Whether paying your income tax, property tax, or other, weighing the pros and cons of using credit can help you decide if a credit card payment is the optimal payment option for your unique situation.