The ultimate guide to paying taxes by credit card, debit card, or gift card. Part 1: Primer

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UPDATE: This post is out of date.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:

 

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