Can you pay state taxes with a credit card

The short answer is yes: You may pay federal taxes and taxes owed to some states with a credit card. Whether you should, however, depends on your financial situation and goals. Let's cover:

• How to pay taxes with a credit card
• Pros and cons of paying taxes with a credit card
• Other ways to pay taxes by credit
• Tips for paying taxes by credit card

How to pay taxes with a credit card

The IRS website is a good place to pay your federal taxes — just follow the instructions on the site. Expect to enter your tax payer information and credit card information. To pay your state taxes, go to your state's website.

If you use a third-party tax preparation software or website to file your taxes, a credit card may be acceptable for payment. Although this is a convenient way to prepare your tax return, the fees to e-file may be high. There are also tax return preparers who work at brick-and-mortar agencies if you'd like to work with someone in-person. A credit card is one of several payment methods a tax preparer may accept.

Pros and cons of paying taxes with a credit card

Pros

• Convenience: Paying taxes online can be a fast process, and you receive an automatic confirmation when your payment is received.
• More time to pay: Using a credit card to pay your tax bill would add it to your credit card balance, which you're able to pay overtime. You're responsible for paying the minimum amount due on your credit card each month, not the whole balance. You might save money paying over time, as well. For example, paying your taxes on a credit card with an introductory APR — which may charge little to no interest — gives you time to pay over the introductory period.
• Sign-up bonus minimums: Sign-up bonus offers usually require spending a high dollar amount before awarding you rewards or points. Paying your taxes with a credit card may be worthwhile if the amount of the tax bill will help you meet the bonus offer requirement. However, if you don't pay your unpaid balance each month, interest will likely offset the bonus.

Cons

• Convenience fees: The IRS won't accept a credit card payment directly. It works with payment processors that accept credit card payments. Each processor on the IRS website charges a convenience fee that varies slightly depending on the processor. The fees area round 2% of the tax amount you are charging to the credit card. You choose which processor you want to use before you send a payment.
• Credit impacts: Big purchases on your card raise your credit card balance. Carrying a high balance month-to-month affects your credit utilization ratio, the percentage of your available credit you use. Your credit score could take a hit if this ratio goes above 30%.
• Few rewards: Cash back rewards cards may offer about 2% in cash back on non-category purchases (which would include taxes). Those earnings could be canceled out by the processing fee you pay when using your credit card for your tax bill.
• High interest: Paying your tax bill with a credit card is similar to making any other purchase with your credit card. Your unpaid balance will incur interest charges if you make only the minimum payment each month.

Other ways to pay taxes by credit

Convenience check

A convenience check is a form of payment that gives borrowers an additional way to access credit. When you use a convenience check, the amount spent is subtracted from your credit line as a cash advance. Keep in mind that this may have a different APR than your standard purchase APR.

IRS payment plan

An IRS payment plan may allow you to pay your taxes over time without affecting your credit score. There are two options:

• Short-term payment plan: This is the plan for you if you can pay within 120 days, and you owe $100,000 or less in combined penalties, tax and interest.
• Long-term payment plan: This plan is for you if you know it will take you longer than 120 days to pay, and you owe $50,000 or less in combined penalties, tax and interest.

Each plan charges interest and fees, so go to the IRS website for the latest information.

Tips for paying by credit card

Here are a couple strategies if you plan to pay your taxes with a credit card:

Balance transfer card

Consider paying your tax bill with a balance transfer credit card. Balance transfer cards help you to move a balance from a high-interest card to a low-interest card. They usually have promotional APR periods available to individuals with good credit and offer a lower APR for a period of time to pay off high balances. Just make sure you are able to pay the credit card off by the end of the promotional period and before the interest rate increases.

Check on your rewards

Before you use a card to earn rewards on your tax payments, double-check to see what you'll earn back. That's true whether you want to use an existing card or apply for a new one that offers a robust sign-up bonus. Remember: You want to be able to earn enough rewards to help offset any fees for paying your tax bill with a credit card.

Should I pay my taxes with a credit card?

If the processing fees outweigh the rewards you could earn, paying your taxes with a credit card probably isn't worthwhile. However, if you value the convenience of using a credit card or find an attractive signup bonus offer, consider using your card. Tax bills may be expensive, and so can interest charges if they rack up. Your financial health depends on using your credit card effectively.

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