UPDATE: This post is out of date. Please click here for up-to-date coverage of paying taxes by credit card, debit card, or gift card.
If you have large estimated or year-end tax payments you’ve probably wondered if you could profit by paying your taxes with a rewards-earning credit or debit card. The answer is unequivocally “yes”. The trick is to make sure that the benefits you get outweigh the fees and hassle involved.
Before getting into the details of how to pay your taxes with various forms of plastic, here are some basic details you should know:
Payment Processors: The IRS maintains a list of companies that accept credit and debit cards towards tax payments. You can find the current information by clicking here. At the time of this writing, debit card fees range from $2.49 to $3.95 per transaction and credit card fees range from 1.87% to 2.35%. Since most debit card fees are a fixed dollar amount, it is usually much less expensive to pay taxes by debit card rather than credit card. Of course, credit card rewards are usually much higher than debit card rewards so that needs to be factored in as well. Pay attention to the asterisks on the IRS page. In some cases paying with a business card or even a MasterCard will result in different rates from those shown in the chart.
Payment Frequency Limits: The IRS maintains another page showing the maximum number of payments that can be made by credit or debit card. In general, annual payments are limited to two per year and quarterly payments are limited to two per quarter. A couple of years ago I researched ways to get around these limits. I found the following (please see full details here):
- Each payment processor enforces the 2 payment limit online.
- You can make 2 payments per processor. Currently, the IRS lists 3 processors across 6 websites (the processors are: Link2GovCorporation, WorldPay US, Inc., and Official Payments Corporation). That means it is possible to make up to 6 payments online.
- An IRS advisor I spoke with at the time did not think that there would be any problem with making more than 2 payments by using different processors. I have made more than 2 payments in the past and never had any issues. That is, of course, just my own personal experience. I can’t guarantee that your outcome would be the same.
- Official Payment Corporation was willing to accept more than two payments at a time over the phone. I received the following information via email: “If you need to make more than two payments for each quarter, please contact Official Payments customer service at (800) 487-4567 and an associate will be able to assist with processing additional payments.” Note that you may be subject to extremely long hold times when going this route!
No Cash Advance Fees: I’m often asked whether credit card companies charge cash advance fees when paying taxes by credit card. The answer is no. All three payment processors agree (via their FAQ pages) that the payment is treated as a purchase not a cash advance. You can find the FAQ info here, here, and here.
Fees may be deductible: The PayUSATax FAQ says the following: “The fee is deductible for personal tax types for those who qualify. For business tax types, the fee is a deductible business expense (see IRS Pub. 529).”
View tax payment history: Once you’ve made payments through online processors, you may want additional confirmation that the IRS received the amount you sent. You can view your past payments at any time by signing up with this government website: www.eftps.gov/eftps/. Full details of how to signup and view your past payments can be found here.
I will follow up shortly with summarized recommendations for paying taxes with credit cards, debit cards, and gift cards. In the meantime, please checkout details in this series:
- Buying miles and points from the IRS: debit cards
- Buying miles and points and cash from the IRS with credit cards
- Buying perks and points from the IRS with credit cards
- Buying miles and points from the IRS with Amex gift cards
- Buying miles and points from the IRS with Visa/MasterCard gift cards
- Buying miles and points from the IRS with reloadable prepaid cards
Want to learn more about miles and points? Subscribe to email updates or check out our podcast on your favorite podcast platform.
my wife recently got the citi business card with a $1900 credit card limit and will get 50K miles after spending 3K. We are not living in the US currently and were planning to pay our US taxes ($3600) with her card. Can we spread the payments out over a few days and this will be sorted out with IRS?
THANKS
Yes, you can make up to 2 payments per service per tax bill. For example, if you’re paying Quarter 2 Estimated taxes, you can make up to 6 payments: 2 with WorldPay, 2 with official payments corp, and 2 with Link2GovCorporation. Then, you could do so again in quarter 3.
has anyone tried to pay taxes using the paypal debit mastercard? anyone know if that will be processed as debit card? thanks in advance!
Did you ever get an answer to this?
I’ve never tried, but I’m pretty sure it would work. That is, it would likely count as a debit card for the purpose of the tax payment fee and would earn rewards since it is not a PIN based transaction.
[…] The ultimate guide to paying taxes by credit card, debit card, or gift card. Part 1: Primer […]
I just bought $5000 in Amex gc ($2K, $3K) that are set to arrive in a day or 2. If I owe more than $5000 in federal taxes, can I use these gift cards to pay $4907 and then send a check to pay off the balance? How would I coordinate the 2 different types of payment and how do I check to make sure the payusatax.com payment went through? Thanks
Yes, that would work. There is nothing special you need to do to coordinate it. See the section above titled View tax payment history for how to make sure the payment went through.
[…] Yes, you could likely buy prepaid debit cards with your credit card and use those to pay taxes. BUT there is a big BUT. It sounds like you are looking to make a large tax payment. Prepaid debit cards generally come in denominations up to $500. There are 3 websites that will accept debit card payments for taxes, but each website limits you to 2 online payments. So you could pay up to 500 x 6 = $3000 in taxes this way (less the fees for using a debit card). You've still got a long way to go to meet your required spend on your AA card, but at least you've made a dent in it. One of the websites that accepts online payments will possibly accept additional payments (more than 2) if you phone. I did try phoning, but gave up after I seemed to be on interminable hold. Perhaps your patience is greater than mine. Frequent miler posted a basic primer on paying taxes by credit card today: http://boardingarea.com/frequentmile…part-1-primer/ […]
To what extent can you overpay and get refunded later (assuming you don’t mind the float)?
I’m not aware of a limit, but I wouldn’t want to overdo it in case it makes an audit more likely
If I pay 2013 tax balance now through one of these payment processors, which 1040 item should I put this payment information?
Form 1040 Balance Due – Tax Year 2013
FWIW, my county property taxes were able to be paid using MOs. Just showed up at the local tax office and handed them 6 separate MOs. Not sure how State/Federal might think about MOs, but probably no different than regular checks.
Moral of the story is it eliminates a step or two and helps get rid of excess MOs that some might be generating.
Yes, good point!
Do PayPal Business Debit Card tax payments earn cash back? Is the card classified as a debit or credit card? Thanks Greg!
Good question. I feel like I looked into that once, but I don’t remember the answer. Is that card limited to $1K debit transactions?
I think my account says daily use is $3,000 and daily ATM use is $400.