Tax season is in full swing, which means if you owe money to the IRS (or think you’ll owe), you’re probably wondering which options are available to pay your taxes. While you can set up a payment plan with the IRS, there are some instances when paying your taxes with a credit card is actually your best bet. Keep reading as we detail how the IRS’ payment plans work and explain when a credit card is a better choice, or click here to view our list of the best credit cards for paying the IRS.
Setting up a payment plan with the IRS can be costly
When you owe money to the IRS, you have multiple repayment options. A number of taxpayers who are unable to pay in full right away may qualify for a 120-day short-term agreement that requires them to pay in full within 120 days. There is no fee for this agreement, but if you don’t pay the amount in full, you may accrue interest and any applicable penalties.
If you want a longer-term payment agreement with the IRS, you have some payment plan options, but know that they come with some fees. Individuals who have filed all required returns and owe $50,000 or less in combined individual income tax, penalties and interest, along with businesses that have filed all required returns and owe $25,000 or less in payroll taxes may be eligible to apply for an online payment agreement. If you’re approved for an online payment plan, you’ll pay 4% interest on your owed amount — these rates are announced every quarter — and one of the set-up fees, with the cheapest one being $31 for setting up a direct deposit agreement online. It should be noted that if you don’t qualify for an online payment agreement, you can set up other installment agreements with the IRS.
When paying with a credit card is a better choice
Many people don’t realize that you can pay your taxes with a credit card. Although you have to pay a credit card processing fee — the cheapest one is 1.87% — if you use a credit card with a long 0% intro APR on purchases, you will not only settle your bill with the IRS, but also pay off the your tax bill interest-free. Keep in mind, that in order to pay your taxes interest-free, you must pay off the balance before the credit card’s 0% intro APR runs out. The best way to determine if a card’s 0% intro APR period is long enough for you is to divide the total owed by the length of the card’s 0% intro APR and decide if that monthly payment is manageable. For example, if you owe the IRS $2,037.40 ($2,000 plus the $37.40 credit card processing fee) and you’re considering the Citi Diamond Preferred Card (a NextAdvisor advertiser), which has a 21-month 0% intro APR on purchases and balance transfers, as detailed below, you’ll to divide $2,037.40 by 21 to get a monthly payment of $97.02 — meaning if you pay this amount per month and don’t charge anything else to the card, you can have your total tax bill paid off in 21 months.
On top of paying no interest, there is another major perk to paying with a credit card: if you use the right one, you can earn rewards for paying the IRS — yes, you read that correctly. The key is to use a rewards credit card that either earns 2% back on all purchases, or 1.5% back and offers a generous intro bonus — that way you can balance out (and then some) the processing fee you’ll pay the IRS. For example, if you pay your $1,528.05 tax bill ($1,500 plus the 1.87% processing fee) with the Chase Freedom Unlimited card (detailed below), you’ll earn a total of $22.92 cash back (1.5% back) and get a $150 intro bonus because you spent at least $500 on purchases in the first 3 months. When you subtract your total cash back ($172.92) from your total IRS bill ($1528.05), you’re only spending $1,355.13 on taxes! What’s more, this card has a $15-month 0% intro APR on purchases, so you have plenty of time to pay off the balance. Since not all cards are worth using on your IRS bill, we detailed the best for avoiding interest and the best for rewards (if you plan to pay in full).
Best credit cards for avoiding interest
Long 0% intro APR: Citi Diamond Preferred Card
Want a year and a half of no interest? If so, the Citi Diamond Preferred Card is your best bet. This card offers a whopping 21-month 0% intro APR on purchases and balance transfers (with a 3% balance transfer fee), making it a great choice to pay your taxes. Although you will have to pay the IRS’ credit card processing fee, as detailed above, which starts at 1.87%, you will escape the IRS’ 4% interest rate, which means you’ll come out money ahead — assuming you pay the balance off before the 0% intro APR runs out. Other perks of the Citi Diamond Preferred Card include no annual fee, free access to your Equifax FICO score and 24/7 access to Citi Concierge to help you book hotels, flights and more.
Long 0% intro APR and cash back rewards: Chase Freedom Unlimited
Those looking to earn cash back on their IRS bill and get a long 0% intro APR will be pleased with Chase Freedom Unlimited. This card has a 15-month 0% intro APR on purchases and balance transfers (with a 5% balance transfer fee) and earns an unlimited 1.5% cash back on all purchases, which means you’re getting cash back to pay your IRS bill! While these rewards are not enough to offset the IRS’ credit card processing fee, the $150 bonus you earn when you spend $500 on purchases in the first 3 months may make it worthwhile. Rounding out Chase Freedom Unlimited is no annual fee.
Long 0% intro APR and travel rewards: Discover it Miles – Unlimited 1.5x Rewards Card
Combining a long 0% intro APR with some top-notch travel rewards is the Discover it Miles – Unlimited 1.5x Rewards Card. This card offers a 14-month 0% intro APR on purchases and earns an unlimited 1.5 miles on every purchase, which makes it a top option for paying your tax bill. What’s more, Discover will match all of the travel rewards you’ve earned at the end of your first year. This means if you earned 25,000 miles — with a redemption value of $250 because 1 mile is equal to $0.01 — Discover will match that and give you a total of 50,000 miles back! The Discover it Miles – Unlimited 1.5x Rewards Card also has no annual fee, gives you free access to your FICO credit score and is the only card on this list that’s available to those with average to excellent credit (usually a credit score above 670).
Best credit cards for earning rewards
If you plan to pay your tax bill in full, it may still be worth it to pay with a rewards credit card. That’s because if you opt for a card that earn 2% or more on every purchase, you can balance out the IRS’ credit card processing fee and get some extra rewards. It should be noted that the cards detailed below do not offer 0% intro APRs on purchases, which means you’ll want to pay these cards off after you make the IRS payment because if you don’t, you’ll be charged interest.
Cash back rewards: Citi Double Cash Card – 18 month BT offer
The Citi Double Cash Card – 18 month BT offer has a unique way of earning cash back. You’ll earn 1% when you make a purchase, then earn an additional 1% when you pay for the purchase. Although this card has no 0% intro APR on purchases, it does have an 18-month 0% intro APR on balance transfers (with a 3% balance transfer fee). The Citi Double Cash Card – 18 month BT offer also provides you with a free monthly Equifax FICO credit score and has no annual fee.
Travel rewards: Barclaycard Arrival Plus World Elite MasterCard
Prefer to earn travel rewards? If so, the Barclaycard Arrival Plus World Elite MasterCard is a great choice for you. This card earns 2 miles per $1 spent on all purchases, and when you spend $3,000 in the first 90 days, you’ll get 50,000 bonus miles — worth $500 in travel statement credit! In addition, every time you redeem your rewards, you’ll get 5% miles back to use toward your next redemption. The Barclaycard Arrival Plus World Elite MasterCard also has no foreign transaction fees and a 12-month 0% intro APR on balance transfers made within the first 45 days of account opening (with a 3% balance transfer fee). Rounding out the card is an $89 annual fee that’s waived for the first year.
Check out our credit card reviews to learn more about the cards detailed in this post and apply online, and follow our tax preparation blog to get the latest information on tax identity theft, e-filing and more.
Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.