Should I Use My Credit Card to Pay My Taxes?

Let’s face it. No one wants IRS debt hanging over their head. The last thing you need is another bill to pay.  It may be tempting to whip out the plastic and to pay the debt, but it makes sense to weigh the consequences and benefits of that decision.

First, The Bad News:


Since the IRS legally cannot pay any credit card transaction fees, they have outsourced credit card payment processing the outside companies such as,, and among others. You’ll be assessed a fee that is anywhere from 1.87 percent to 2.35 percent of your balance.

Additionally, if you use third-party software such as to pay your tax debt, you’ll encounter their fee of about 2 percent of the balance you owe.

           Higher Interest Rates:

If you decide to transfer your tax debt to your credit card, you’ll be charged an APR (Annual Percentage Rate) of 14 percent or more, depending on your card. On the other hand, the IRS charges about 5 percent interest each month your tax debt is not paid in full.

Other options to consider:

The most practical option would be setting up an installment plan with the IRS. You’ll have affordable monthly payments that are based on your income, lower interest rates and the option to have your payment automatically drafted from your bank account for no charge. You’ll also continue to remain on good terms with the IRS since you are making a good-faith effort to pay your debt.

The Good News:

           Convenience: Not only do you knock out your tax debt in one lump sum, you also have the convenience of making your payment by phone, online, via a third-party tax prep software (TurboTax or similar) or by snail mail.

           Rewards: Your card issuer will reward you with extra air miles or related travel perks as part of its reward program for transferring your balance. This would be an attractive option if you travel quite a bit or are planning a vacation in the near future.

          Peace of Mind: Unlike the IRS, your credit card holder won’t demand access to your bank account or other assets should you miss payments or otherwise stumble on paying back the debt.  If the peace of mind is worth the extra fees and high balance on your credit card, this may be the option for you.

When deciding whether or not to pay your tax debt with your credit card, it makes sense to weigh your options and to decide what is right for your unique situation. While the IRS does offer payment plans with lower interest rates than credit card companies, you may be put off by the thought of running afoul of the IRS should you miss more than one payment.

If your budget can tolerate the higher interest rates offered by the credit card issuer, paying your tax debt with your credit card might work best for you. Either way, if you are faced with an outstanding tax balance with the IRS, you will need to take care of it before the deadline to avoid extra fees/late penalties/possible collection action from the IRS.

It’s your money…spend it wisely.