Should You Pay Taxes with a Credit Card?

Paying taxes with a credit card is allowed for federal and many state tax payments, but the IRS and state tax authorities process card payments through third‑party processors that charge a convenience fee. Before you press “submit,” understand the full cost: processing fees plus any interest you may pay if you carry a balance. For many taxpayers the fee plus interest exceeds the value of any card rewards.

Source: IRS — Pay your federal taxes (https://www.irs.gov/payments).

How paying taxes by card actually works

  • The IRS and most state tax agencies accept card payments through authorized third‑party processors. The government does not collect the fee — the processor does.
  • Processors publish a convenience fee that is a percentage of the payment. Processor fees typically fall in a band; as of 2025 many processors advertise rates roughly between about 1.8% and 2.5% depending on card type and method. Always check the processor’s posted rate before confirming a payment (the IRS links to the processors and current fees on its payments page).
  • Your card issuer may treat the tax payment as a purchase or, rarely, as a cash advance. Cash‑advance treatment usually means immediate fees and a higher APR. Confirm with your issuer.

Authoritative reading: IRS payments hub (https://www.irs.gov/payments).

Quick cost comparison — fees, rewards and interest (examples)

Example assumptions used below: processor fee = 2.0%; card APR (if carried) = 20% APR; reward rate = 2% cash back.

1) Immediate payoff (you can pay the card balance in full by the statement due date):

  • Tax debt: $5,000
  • Processor fee (2%): $100
  • Card rewards (2%): $100
  • Net incremental cost: $0 (rewards offset fee), but you still paid the fee up front

2) Carry a balance for 3 months (20% APR, compounded monthly approximation):

  • Tax debt: $5,000
  • Processor fee (2%): $100
  • Interest for 3 months ≈ $5,000 × 0.20 × (3/12) = $250
  • Total extra cost (fee + interest) ≈ $350 — far above a 2% rewards payout of $100

3) Larger balance and longer carry period magnifies cost quickly. At 20% APR, every month you carry $10,000 costs roughly $167 in interest.

Takeaway: Unless you can pay the card balance in full immediately, interest typically overwhelms any rewards and makes the card route expensive.

Pros and cons — clear checklist

Pros:

  • Immediate liquidity when you don’t have bank funds available.
  • Potential to earn rewards, welcome bonuses or meet minimum spend thresholds.
  • Can be faster than arranging a loan or some bank transfers in certain situations.

Cons:

  • Convenience fees (commonly ~1.8%–2.5%) on the payment amount.
  • Potentially large interest charges if you carry a balance — credit card APRs in 2024–25 commonly run in the high teens to low‑20s for many consumers.
  • Risk your issuer treats the payment as a cash advance (confirm before paying).
  • Third‑party processors collect the fee — it’s nonrefundable even if you later overpay or get an adjustment from the IRS.

When it might make sense

  • Short bridge need: You have a secure, short‑term plan to pay the card balance in full before interest accrues (i.e., within the grace period). If so, rewards can offset or exceed the fee.
  • Emergency liquidity: You absolutely need to avoid late payment penalties or levy risk and don’t have another low‑cost option.
  • Chasing a limited‑time reward that materially exceeds the fee — but be very cautious and run the math.

In my practice I’ve seen clients use credit cards to avoid immediate collection action; that can be a reasonable tactical move if you can extinguish the card balance quickly. But I also see many clients underestimate interest and end up paying far more.

Safer, usually cheaper alternatives (what to compare)

Compare total fees and interest across options before choosing — sometimes an installment agreement with modest setup fees and continued penalty/interest accrual is still cheaper than paying card fees plus APR.

Practical steps and a decision checklist

  1. Confirm current processor fee on the IRS/state payment page before initiating payment (fees change and vary by processor).
  2. Call your card issuer and confirm whether the tax payment will be coded as a purchase or a cash advance and whether any special fees apply.
  3. Calculate: Processor fee + projected interest if you expect to carry a balance. Use a conservative APR (e.g., your card’s APR) and a realistic payback timeline.
  4. Compare with fee‑free options (Direct Pay, EFTPS) and structured options (installment agreement).
  5. If rewards are your rationale, compute the net: rewards value minus processor fee minus expected interest. If net is positive only when you assume paying in full, be realistic about your payback discipline.
  6. Keep records: save confirmation numbers and receipts from the payment processor and the IRS.

Common mistakes I see with clients

  • Treating the card payment as “free” because of rewards. Rewards rarely offset processor fees unless the card rewards rate significantly exceed the fee and you pay the balance in full.
  • Failing to confirm whether a payment counts as a cash advance. Some issuers treat payments to government processors differently — get it in writing or ask for a written confirmation.
  • Not factoring in the time value: if you carry a balance even briefly, interest compounds and quickly erodes any rewards benefit.

Short FAQ

Q: Are processor fees the same for federal and state taxes?
A: No — processors and rates may differ by jurisdiction. Always confirm the exact fee shown during the payment flow.

Q: Will I earn credit card rewards on a tax payment?
A: Typically yes, if your issuer treats the charge as a purchase. Rewards treatment and category rules depend on your card. Verify with the issuer first.

Q: What if I can’t pay a card balance after using it for taxes?
A: Contact the IRS about installment agreements and consult the resources above. Also contact your card issuer to discuss hardship or payoff options. An installment agreement may still be less expensive than carrying a card balance.

Sources and further reading

Professional disclaimer: This article is educational only and does not constitute tax or legal advice. Tax rules and payment processing fees change; consult an enrolled agent, CPA, or the IRS for advice specific to your situation.

In my 15+ years advising clients, paying taxes with a credit card has a narrow set of situations where it makes sense — short, disciplined bridges to cover an immediate cash shortfall or when a rare reward net gain exists and you will pay the card in full immediately. In most other cases, fee‑free bank options or an IRS installment agreement will be cheaper and simpler.