Image by eliazar via FlickrI received a kind letter from American Express today. It was addressed, “Dear Ryan.” How nice.
Then the letter went on to tell me how convenient it would be for me to pay my tax bill with my American Express Business Gold Rewards Card… In fact, I could earn one Membership Rewards Point for virtually every dollar in taxes that I charged to my business card!
You can pay your taxes with a credit card?
Yes you can. It turns out there are two IRS approved companies that are able to process credit card payments over the phone or on-line. The two companies, Link2Gov and Official Payments, charge a “convenience fee” of 2.49%. That was in the fine print at the bottom of the kind letter AmEx sent me.
I’ll be honest, I really like my AmEx business card (especially because I received a nice credit card bonus to sign up for it!). But just because I like my card, doesn’t mean I will use it to pay my taxes!
Does it make financial sense to pay your taxes with a credit card?
I’m not sure what your reward points are worth, but I doubt mine are worth 2.49% on my business card (at least not on this type of purchase). Since I owe $1,100 on my taxes this year, it would cost me $27.39 to pay my taxes. Keep in mind these fees are on top of tax software or accountant fees, and any transaction or interest charges if not paid in full. For me, it doesn’t make sense (¢ents) to use my rewards card.
While it doesn’t make sense in my situation, there can be benefits to paying your taxes with a credit card. If you have a credit card that offers 3-5% cash back, then this might not be a bad move if you have the funds to pay your taxes in full when the bill comes. It also frees up cash flow and allows you to defer payment for another month or so. But for most people, I just don’t see this as being a good option.
As for me, I owe $1,100 and I will mail the check on April 14th. (Traffic is generally awful on the 15th!). It will probably take a couple days for the IRS to process the check, so that money will remain mine for awhile longer – earning interest, just as I prefer!
You can pay your taxes with a credit card, but that doesn’t mean it’s a good idea. If it earns you enough cash back, then consider it, otherwise leave it alone!