As a well wisher, I wouldn’t tell you to pay your income tax with a credit card because that is not financially healthy. In addition to the tax, you have to pay credit card fees and interests. So, this means you have to pay more money. It’s a sheer waste of money.
2020 is different from other years due to the pandemic. CoronaVirus is taking one life after another. The same scenario is in the job sector also. There are only 2 positive things that we have obtained from the CoronaVirus.
First, it has given us an opportunity to spend more time with our family.
Second, it has extended the tax filing deadline to October 20. So, you have enough time to file your income tax returns this year. However, if your financial situation is in bad shape and it doesn’t improve within October also, then you’re in trouble. You have to pay tax somehow and may need to use your credit card when you’re left with no other option.
Here are a few judicious ways to use credit cards and pay your income tax.
1. Use your reward credit cards: You can use rewards cards to pay your income tax. However, in that case, try to use a credit card from which you’ll earn points, rewards, miles, etc. Otherwise, it will be a total waste of money.
Make sure you use a reward card that gives you good reward points when you use it for paying bills. Calculate how many reward points you will earn after paying income tax with the card. If the reward points are higher than the credit card processing fee, then you can go ahead. In the last few years, the credit card processing fees have decreased and reward points have increased. So, it’s possible to earn good reward points when you pay tax with certain credit cards.
2. Use 0% APR credit cards: These are actually balance transfer cards, which comes with 0% APR. The 0% APR is charged only during the introductory period. If you have one of these cards where the introductory period is not yet over, then you can use it to pay your income tax.
Many people don’t have money to pay tax, and this is true. They use credit cards not for earning rewards but for avoiding tax penalties. Critics would argue that people can use tax repayment plans. But, I would like to point out that when someone is paying tax with a balance transfer credit card, he has to pay a merchant fee. Plus, he has to pay the balance within the introductory period, which usually lasts for 12 months. This is nothing in comparison to the penalties and interests involved in tax repayment plans.
Few credit cards that you can use to pay your income tax
Here are a few notable credit cards you can use to make income tax payments. Please note that I don’t get any commission from these credit card companies. This is not any kind of advertisement for any credit card. It’s not a sponsored post. All that I’m saying is that you can look at the features of the aforementioned credit cards, and compare them with others. Check and choose a card accordingly.
· Capital One® Venture® Rewards Credit Card:
· Chase Freedom Unlimited:
· Chase Freedom Unlimited:
· Alliant Visa Signature Card:
How to pay income tax with your credit cards
First, you have to calculate how much to pay for your tax.
Next, you have to visit the official website of the IRS. Next, check out the IRS payment page. After you have reached that page, you’ll see that there are 3 options to pay your income tax. The first option is to pay your tax with a credit card. The next option is the debit card. And, the third option is to pay tax from your digital payment wallet. Since you want to pay tax with a credit card, you should select that option.
After you have selected the credit card option, your next task is to select your preferred credit card processor. The IRS has a list of approved payment processors. You have to choose among them. These are:
- American Express
Whenever you make transactions through credit cards, you have to pay a fee. This fee is called credit card processing fees, which you have to pay for each financial transaction. If you want to pay US tax, then you have to pay a fee of $2.69. When you have to pay 1040 tax, then you have to pay a fee of $2.59. And, when you’re paying tax for official payments, be prepared to pay at least $2.50 credit card processing fee.
The IRS gives you the option of paying tax with credit cards through tax software like Turbotax and H&R block. You can pay tax online through the tax preparation software. However, in that case, you have to pay a higher credit card processing fee. The minimum credit card processing fee is 2.49%.
Understand the difference between ‘can’ and ‘should’
Can you pay tax with a credit card? Yes, you can. The IRS has allowed people to pay income tax with a credit card from 1997 after the enactment of Taxpayer Relief Act. You can also pay state tax with credit cards. But, should you pay tax with credit cards? Well, if you love your financial health, then the answer is ‘no.’
If you have cash, then it makes sense to pay tax with it. Paying a huge tax bill with credit cards can increase your credit utilization ratio. And, that would drop your credit score. Again, if you can’t pay off the credit card balance quickly, then you have to pay high interests. Average credit card interests are around 17%, which is quite high. It is more than what IRS installment plans charge. You could end up paying a lot of money on the interests. That doesn’t make any sense at all.