We all know that personal income tax filings are due soon, but so are the first round of quarterly estimated taxes for 2016. Many of us with freelance or side-gig income must makes these payments in order to avoid a tax penalty at the end of the year.
You can pay taxes with a credit card, but there is usually a convenience fee attached. So why would you bother?
- You may wish to earn rewards for the purchase in the form of cash back, points, or miles. These rewards may be of greater value to you than the fee. (* See bottom of post for examples.)
- You may want to pay off the balance more gradually, especially if you have a low interest rate offer like 0% for 12 months on purchases.
Here I’d like to keep track of the current rates for convenience fees, any limited-time promotions, as well as some credit card with rewards greater than the convenience fees.
Limited-time offer: 1.75% fee with Mastercard from Plastiq. I received an e-mail from Plastiq stating:
Taxes are due in less than a month, so make it easier on yourself by paying them through Plastiq. To make taxes even less painful, we’re offering a special promotion starting today. Get a 1.75% rate for all federal and state tax payments when you use your MasterCard!*
So get ahead of the game and pay your taxes now. This special rate will expire on April 18, 2016 a 5 p.m. PT, so sign in and take full advantage of this limited-time offer!
There is no landing page, but the offer is mentioned on their Twitter so I assume it is not targeted. You must initiate your purchase from this link, which ensures that you can only use the offer to pay federal or state taxes. The sub-categories include income taxes, payroll withholding taxes, self-employment taxes, business taxes, and more.
Standard convenience fee rates for 2016 start at 1.87%.
The IRS keeps a list of approved payment processors and updates it regularly. Here is the list, along with fees valid until December 31st, 2016. All of them accept Visa, Mastercard, Discover, and American Express.
- Pay1040.com: 1.87% fee with a minimum fee of $2.59
- PayUSATax.com: 1.99% fee with a minimum fee of $2.69
- OfficialPayments.com: 2.25% fee with a minimum fee of $2.50
Note that there is a frequency limit on how often you can make credit card payments. You can make credit card payments towards estimated taxes up to twice per quarter.
Screenshot:
Are the fees tax-deductible? You may also want to take into consideration that the convenience fee may be tax-deductible or a business expense:
- The fee is deductible for personal tax types as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceed 2% of adjusted gross income can be deducted. For more information, see IRS Publication 529.
- For business tax types, the fee is a deductible business expense.
Personal experiences. I have used Plastiq to make credit card payments (though not tax payments yet), and I have used PayUSATax.com back when they were the cheapest option. Both experiences were positive with no issues. Your credit card statement will list this payment as “United States Treasury Tax Payment.” The convenience fee will be listed as “Tax Payment Convenience Fee” or something similar. Here’s what my statement looked like:
Notably, I know of no reason why you would not just go with the cheapest available payment processor. If they are on the IRS list, they are all officially accepted by the IRS. In fact, in my testing I found the most expensive one to offer the worst in-browser user experience.
To avoid any headaches, I would take great care when making the payments to make sure they are properly designated, as the payments are not reversible or refundable by the processor.
Specific credit card examples. The following cards currently have the ability to offer cash back rewards equal or greater than 1.75%, meaning you can actually make money by paying your taxes with them. Please read my card-specific reviews for details.
The Best Credit Card Bonus Offers – November 2024
Big List of Free Stocks from Brokerage Apps
Best Interest Rates on Cash - November 2024
Free Credit Scores x 3 + Free Credit Monitoring
Best No Fee 0% APR Balance Transfer Offers
Little-Known Cellular Data Plans That Can Save Big Money
How To Haggle Your Cable or Direct TV Bill
Big List of Free Consumer Data Reports (Credit, Rent, Work)
You may want to add a note that you can only make 2 credit card payments per year: https://www.irs.gov/uac/Frequency-Limit-Table-by-Type-of-Tax-Payment
Please see the original post… “Note that there is a frequency limit on how often you can make credit card payments.”
Estimated tax payments by credit are also allowed twice per quarter, not twice per year.
Nice post Jonathan, I wasn’t even aware of these services. I think that using credit card rewards to offset the fee is a good idea, but more or less breaking even. I think a better use would be to meet credit card signup bonus requirements! You would get a lot more bang for your buck than traditional rewards and some people’s quarterly tax payments could meet the necessary $1,000-$3,000 required spending by many card signup promotions. Thanks for the idea!
Good point, meeting credit card signup hurdles is another good use of this option. Thanks for your comment.
Can someone tell me, if I have filed my taxes already with the intention of mailing a check, and I subsequently make a credit card payment, is there a way to confirm that the IRS has connected my payment with my tax bill?
When you make a payment using these services, your payment funds are applied to your social security number. As long as you provide a correct social security number, there is really no way for your money to do missing. I have used these services for many years and paid my taxes on the 15th of April.
Wow, a lot less approved processors this year.
Are you sure it’s only 2 credit card payments per year? I’m pretty sure I’ve done more than that in years past? One would think it is at least once per quarter so that people can pay their estimated taxes as they go.
spend 2% fee to get 1% cash back. Good idea.
I can’t tell if you’re being serious, but that is not what I am recommending. You could theoretically pay 1.75% fee and get 2% or higher cash back. I happen to get 2.625% back. Some credit card sign-up bonuses effectively get you 5% back when you divide the bonus by the spending hurdle amount.
Billy must be joking because like you said there are many ways to get 2% or higher cash back. Currently, I happen to get 4.5%. My normal rate of cash back has been 2.5% for many years.
How can you confirm the rate on the platiq site? After I hit the link it doesnt call out the rate anywhere. This seems like a good deal since I owe a LOT this year and with a 25bps spread between this offer and Citi Mastercard feels like easy money
You’ll have to sign up and start the process. The rate should be confirmed before you actually make the charge.
I think BofA Cash Reward CC offer 1% on regular purchases and a max of 0.75% as platinum honors customer, not sure how come it’s been on the list, Am i missing anything?
You’re right-o, included it because the 1.75% max will get you break-even with the 1.75% promo rate at Plastiq.
Hi, I’m wondering if Plastiq isn’t on the IRS list of approved payment processors, then how is it useable for paying income taxes?
Jonathan – Any issues using your boa card on the PAY1040 site? I’m having problems with larger balances. No such issues with other cards. I called boa and they confirm there is no issues on their end.