Paying income tax can be a significant financial burden, but using the right credit card can help you earn rewards, manage cash flow, and potentially even defer payments. This guide explores the best credit cards for income tax payments in 2024, helping you make an informed decision based on your individual needs and spending habits. Utilizing a credit card for tax payments allows you to leverage rewards programs and potentially access 0% APR periods, making tax season a little less taxing.
Credit Cards for Income Tax Payment: A Comparison
| Credit Card | Key Benefits | Considerations |
|---|---|---|
| Chase Freedom Unlimited | 1.5% cash back on all purchases, including tax payments. Intro APR offer available. | Balance transfer fees may apply. Requires good to excellent credit. Tax payment processing fees apply, potentially negating rewards for smaller payments. |
| Chase Sapphire Preferred | Earns Chase Ultimate Rewards points, which can be redeemed for travel, cash back, or gift cards. Offers travel insurance. | Annual fee. Tax payment processing fees apply. Requires good to excellent credit. Points value varies based on redemption method. |
| American Express Blue Cash Preferred | 6% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%), 3% cash back at U.S. gas stations and on transit. | Annual fee. Tax payment processing fees apply. Requires good to excellent credit. Limited rewards outside of bonus categories. |
| Citi Double Cash Card | 2% cash back on all purchases (1% when you buy, 1% when you pay). | No intro APR offer. Tax payment processing fees apply. Requires good to excellent credit. No bonus categories to maximize earnings. |
| Discover it Cash Back | Rotating quarterly bonus categories (5% cash back on up to $1,500 spent in each category). | Requires activation of bonus categories. Tax payment processing fees apply. Rotating categories may not always align with your spending habits. Discover is less widely accepted internationally compared to Visa or Mastercard. |
| Capital One Venture Rewards Credit Card | Earns miles that can be redeemed for travel or statement credits. Offers travel benefits. | Annual fee. Tax payment processing fees apply. Requires good to excellent credit. Miles value varies based on redemption method. |
| U.S. Bank Altitude Reserve Visa Infinite Card | Earns points on travel and mobile wallet purchases. Offers airport lounge access. | High annual fee. Tax payment processing fees apply. Requires excellent credit. Higher spending requirements to justify the annual fee. Mobile wallet usage required to maximize rewards. |
| Business Credit Cards (e.g., Chase Ink Business Preferred) | Often offer higher rewards on specific business-related spending categories. | Requires a business (even a small side hustle). Tax payment processing fees apply. Annual fees are common. Personal guarantee usually required. |
| Cards with 0% APR for Balance Transfers | Offers a period of 0% APR on transferred balances. | Balance transfer fees apply. Requires careful planning to pay off the balance before the APR increases. Tax payment processing fees apply. May require excellent credit. |
| Plastiq (Using Any Card) | Allows you to pay bills with credit cards that normally don't accept credit card payments. | Plastiq charges a fee, reducing the overall value of rewards. Not all tax payment options may be supported. Payment processing can take several days. |
Detailed Explanations
Chase Freedom Unlimited: This card offers a straightforward 1.5% cash back on all purchases, making it a simple option for earning rewards on tax payments. The intro APR offer can provide a temporary period to pay off the balance without interest. However, keep in mind that tax payment processors charge fees, which can reduce the overall value of the rewards, especially for smaller tax bills.
Chase Sapphire Preferred: This card earns valuable Chase Ultimate Rewards points, which can be redeemed for travel, cash back, or gift cards. The travel insurance benefits are a bonus for frequent travelers. The annual fee should be weighed against the potential rewards earned on tax payments and other spending. The redemption value of points varies depending on the method used.
American Express Blue Cash Preferred: This card offers high cash back rates on supermarket purchases, gas, and transit, but it may not be the best choice solely for tax payments unless you spend heavily in those categories. The annual fee needs to be considered in relation to your overall spending habits. The 6% cash back on supermarkets is capped at $6,000 per year.
Citi Double Cash Card: This card provides a simple 2% cash back on all purchases (1% when you buy and 1% when you pay), making it a good option for earning rewards on tax payments without having to worry about bonus categories. However, there's no intro APR offer, and no bonus categories exist to maximize earnings.
Discover it Cash Back: This card features rotating quarterly bonus categories that offer 5% cash back on up to $1,500 in spending per quarter. However, you must activate the bonus categories each quarter, and they may not always align with your spending habits. Discover's international acceptance is less widespread than Visa or Mastercard.
Capital One Venture Rewards Credit Card: This card earns miles that can be redeemed for travel or statement credits, making it a good option for those who travel frequently. The travel benefits are an added bonus. The annual fee should be considered in relation to your travel spending and mile redemption preferences.
U.S. Bank Altitude Reserve Visa Infinite Card: This card offers premium rewards on travel and mobile wallet purchases, along with airport lounge access. The high annual fee makes it suitable for high-spending individuals who can maximize the rewards and benefits. Mobile wallet usage is required to maximize rewards earned.
Business Credit Cards (e.g., Chase Ink Business Preferred): These cards often offer higher rewards on specific business-related spending categories, such as advertising, shipping, or travel. They are suitable for business owners who can utilize these bonus categories. Requires having a business, and a personal guarantee is usually required.
Cards with 0% APR for Balance Transfers: These cards offer a period of 0% APR on transferred balances, allowing you to pay off your tax bill over time without incurring interest charges. Balance transfer fees apply, and careful planning is required to pay off the balance before the APR increases.
Plastiq (Using Any Card): Plastiq is a third-party service that allows you to pay bills with credit cards that normally don't accept credit card payments. However, Plastiq charges a fee, which can reduce the overall value of rewards. Not all tax payment options may be supported, and payment processing can take several days.
Key Considerations:
- Tax Payment Processing Fees: The IRS charges a processing fee for credit card payments, typically around 1.82% to 1.99%. This fee can significantly reduce or even eliminate the value of the rewards you earn. Factor this into your calculations.
- Credit Score: Most rewards credit cards require good to excellent credit. Check your credit score before applying to increase your chances of approval.
- Spending Habits: Choose a card that aligns with your overall spending habits. If you spend heavily in certain categories, a card with bonus rewards in those categories may be the best choice.
- Annual Fee: Consider whether the annual fee is worth it based on the rewards you expect to earn.
- APR: If you plan to carry a balance, look for a card with a low APR. However, it's generally best to pay off your balance in full each month to avoid interest charges.
- Rewards Redemption Options: Consider how you prefer to redeem your rewards. Some cards offer cash back, while others offer travel rewards or gift cards.
- Payment Processor Limits: Check the IRS-approved payment processors for any limits on the amount you can pay with a credit card. Some processors also have different fee structures.
How to Pay Your Income Tax with a Credit Card:
- Choose an IRS-approved payment processor: The IRS partners with several authorized payment processors, such as PayUSAtax, Pay1040, and ACI Payment, Inc.
- Visit the payment processor's website: Go to the website of your chosen payment processor.
- Enter your tax information: Provide your tax information, including your Social Security number, filing status, and the amount you owe.
- Select your credit card: Choose the credit card you want to use for the payment.
- Pay the processing fee: The payment processor will charge a fee for using a credit card.
- Submit your payment: Review your payment details and submit your payment.
- Receive confirmation: You will receive confirmation of your payment.
Frequently Asked Questions
Can I pay my income tax with a credit card?
Yes, you can pay your federal income tax with a credit card through an IRS-approved payment processor, though a processing fee will apply. These processors act as intermediaries between you, the IRS, and your credit card company.
What are the fees for paying taxes with a credit card?
The IRS doesn't directly charge a fee, but the payment processors do, typically ranging from 1.82% to 1.99% of the payment amount. This fee is assessed by the payment processor for handling the transaction.
Is it worth paying taxes with a credit card for the rewards?
It depends on the rewards rate and the processing fee; calculate if the rewards outweigh the fee. If your rewards rate is less than the processing fee, it might not be financially beneficial.
Which credit cards are best for paying taxes?
Cards with high cash back rates or travel rewards can be beneficial, but consider the annual fee and processing fee. Cards like Chase Freedom Unlimited, Citi Double Cash, or cards with travel rewards can be good options.
Can I pay my state income tax with a credit card?
Yes, many states allow you to pay your state income tax with a credit card, but the process and fees may vary. Check your state's Department of Revenue website for specific information.
What is Plastiq, and how does it work for tax payments?
Plastiq is a third-party service that allows you to pay bills with a credit card even if the recipient doesn't accept credit card payments. However, Plastiq charges a fee for this service, reducing the overall value of any rewards earned.
What if I can't afford to pay my taxes on time?
Consider an IRS payment plan or a 0% APR balance transfer card, but be mindful of fees and interest rates. An IRS payment plan allows you to pay your taxes in installments, while a 0% APR balance transfer card can give you time to pay off the balance interest-free.
Conclusion
Choosing the best credit card for income tax payment depends on your individual circumstances, spending habits, and credit score. Weigh the rewards, fees, and APR carefully to make an informed decision that benefits your financial situation. Remember to always pay your balance in full and on time to avoid interest charges and maintain a good credit score.