You can’t make money by paying taxes with a credit card, but you can make the process easier. This is one of those weird tricks that could really pay off for some people… if they’re willing to put in the work.
The “what is the fee for paying taxes with credit card” is a question that many people have been asking. The answer to this question is, it depends on what state you live in.
There are just a few options available for Americans who owe taxes to settle their debt to the government. Direct bank account withdrawal, in-person cash payments at participating businesses, digital wallets, payment plans, debit and/or credit cards, and payment plans are all acceptable forms of payment. However, there are costs involved with the final choice.
Taxes may be paid using a debit card for a small $2.20 cost or a credit card for a fee of 1.87 percent of your total tax payment.
There is enough leeway to make paying taxes using a credit card worthwhile, even though it may be either big or tiny depending on your tax amount. The results of my calculations are shown below.
Sam Thomas of Istockphoto provided the photo.
How I Saved Money by Paying My Taxes With a Credit Card
My tax bill for 2020 was $4,200. I just didn’t have the money to pay the amount in full at the time since I was going through a divorce. So I made the decision to look into credit cards with 0% intro APR to see how I might finance the cost.
I calculated the costs and made the decision to proceed. My Capital One Savor Rewards Card application was accepted right away. I paid the whole tax amount using the card when I first got it. The charges’ appearance on my credit card bill is seen in this graph. Although it cost $82 to pay my taxes using a credit card, the math was on my side.
Moneygeek.com, source of the image.
the Sign-Up Bonus first
My tax bill was far more than the spending threshold, therefore I was able to collect the sign-up bonus first. After spending $500 in the first three months of card membership, you get a $200 cash bonus. It is a respectable sign-up bonus for a cash back credit card with no annual fee. In addition, I received 1% cash back on the total $4,282.32 amount, which is equivalent to around $43.
Therefore, after deducting the $82 service charge from the $243 credit card bonus I received, I was left with $161 in profit. Additionally, as credit card rewards are not taxed, this profit is tax-free.
B4LLS/iStock is credit for the image.
Benefit from the 0% Intro APR Offer.
Despite the great profit, the major reason I used the Capital One SavorOne Rewards Card to pay was to benefit from the introductory APR rate of 0%. If I make the minimum payment, I may carry the debt from month to month without paying interest. I have been paying down the debt over the course of the 15 months so that I would not need to transfer the remaining sum.
Photograph courtesy of fizkes/istockphoto.
If necessary, use a balance transfer card.
I may not need to transfer the debt since I was routinely paying it off. However, if I do need to apply for a debt transfer credit card, I’m considering doing so for the Wells Fargo Active Cash since it has a long balance transfer period and beneficial introductory bonuses. By doing this, I keep prolonging the time I have to pay the loan down, which will make the math favor me once again. Let’s imagine I need to charge the card with the remaining $2,000 in balance. I’ll pay a 3 percent balance transfer charge, or $60, in total. However, with the $200 cash incentive, I will come out ahead again by $140 after spending $500 in the first three months.
Although using a credit card to pay isn’t a long-term answer, it is sensible for me (and maybe you as well) to keep saving for the future and maintain debt that has no interest payments.
Source of the image: DepositPhotos.com.
What You Should Know Before Using a Credit Card to Make Payments
Consider these elements, such as your credit score, accessible servicers, and incentives, before you begin paying your taxes using a credit card.
LightFieldStudios/Istockphoto are the source of the image.
How Card Payments Affect Your Credit Score
It’s important to keep in mind that carrying a load on a credit card with a 0 percent APR might hurt your credit score, particularly if the card has a smaller credit limit.
For instance, I used around 40% of the $10,000 credit limit on my Capital One SavorOne card to pay my taxes. This card has a $10,000 credit line. My credit score went down a little bit, but it’s nothing to worry about. Generally speaking, you should maintain your credit usage below 30%.
A significant rise in credit consumption may also cause a little drop in your credit score.
Therefore, be sure that the credit line on any new cards you apply for or plan to use is more than your expected tax payment. It’s not a good idea to use all of the credit on your card, so contact your issuer if you need extra credit to see if they can raise your credit limit.
cnythzi, author of the image
Recognizing the Various Servicers Available for Payment
You have a choice of three different servicers when you get your tax bill and opt to pay with a debit or credit card: ACI Payments, Pay1040, or payUSAtax. Each of them has received IRS approval and levies a separate cost.
With a 1.87 percent cost, Pay1040 presently has the lowest rate for credit card tax payments.
Source of the image: DepositPhotos.com.
Knowing Which Benefits Are Worth The Cost
In my instance, I was vying for the sign-up bonus to assist reduce the cost of using a credit card to pay taxes. However, paying a tiny charge can be worthwhile for someone who wishes to increase their reward earnings or fulfill a high spending threshold for a welcome gift.
Calculate your incentives in relation to the cost you pay, but make sure to do so. For instance, the tiny cost could be worthwhile if you prefer collecting American Express Membership Rewards points to use toward first-class airfare, particularly if you value Amex rewards at more than 1.8 cents per point.
Photo courtesy of SIphotography/iStock.
Going electronic may be the best course of action.
Tax season is almost approaching, and it’s going to be challenging. There are increasing reasons to manage your payments online rather than by mail as the IRS suffers with staff absences caused by COVID-19 and other logistical challenges.
Consider paying your taxes during tax season using a credit card if you need some flexibility or just want to earn benefits for doing so.
Related:
MediaFeed.org syndicated this piece after it first published on MoneyGeek.com.
Source of the image: DepositPhotos.com.
Read more from MediaFeed
Nicoletaionescu of istockphoto provided the image.
AlertMe
The “can you pay property taxes with a credit card” is a question that has been asked for years. It seems like the answer is no, but there are some people who have done it.
Related Tags
- paying taxes with credit card for points
- can you pay federal taxes with a credit card
- best credit card to pay taxes
- can you pay car taxes with a credit card
- can you pay taxes with a credit card on turbotax
