The best rewards credit cards for paying taxes can earn you thousands of points, but do the math to make sure it's worth it

• The fee to pay taxes with a credit card is at least 1.96%, but it could be worth it in some cases.
• With a new credit card, paying taxes could help meet the spending requirement for the welcome bonus.
• If you can't pay your credit card off in full, it's better to set up a payment plan with the IRS. 
• Read Insider's guide to the best rewards credit cards.

Getting hit with a tax bill is never pleasant, but you can make the most of it by paying with the right credit card and earning extra rewards. 

Whether you're hoping to meet a minimum spending requirement to earn a generous credit card welcome bonus or simply looking to earn rewards on your spending, tax season can be an opportunity to boost your cash back, miles, or points balances. 

However, there are fees involved, so you'll want to make sure it's worth it before you hit pay. You also want to be sure you can pay your card balance in full to avoid interest fees, as they'll effectively negate the value of any rewards you earn.

Here's everything you need to know about paying your taxes with a credit card and the best cards to use.

How to pay taxes with a credit card

You'll have to pay your taxes through a third-party payment processor if you want to use a credit card, and they all charge credit card processing fees. The IRS uses three different payment processors for paying federal taxes, all of which charge just under 2% and accept all the major credit card payment networks.

I pay my quarterly taxes with PayUSATax because they charge a slightly lower fee of 1.96%, which comes out to $19.60 for every $1,000 I have to pay. Last year, when I ended up owing several thousand dollars in taxes, paying with a credit card helped me earn 75,000 points.

You'll pay through the website and receive payment confirmation in your email along with a confirmation number. It can take about a week for the IRS to post the payment to your account, but the date that your payment is confirmed by the payment processor counts as your payment date.

If you want to pay state taxes or local taxes (like property taxes) with a credit card, you can try seeing if your tax agency accepts credit cards and charges reasonable fees. You can also try paying them with Plastiq, a service that lets you pay almost any merchant with a credit card for a 2.85% fee.

When is it worth it to pay your taxes with a credit card?

The rewards are worth more than the fees you'll pay

Paying your taxes with a credit card is only worth it if the rewards you're earning outweigh the fees you'll pay. Figure out how much you'll earn in cash back or points — if it's points, estimate the value of those points — and then calculate how much you'll have to pay in processing fees.

It's rare that a credit card offers a high enough rewards rate on a tax payment to net you more than what you'd pay in fees based on that alone. For example, the Chase Freedom Unlimited® is one of the most generous cash-back cards out there, but even earning 1.5% back on regular purchases isn't enough to make up for the 1.96% processing fee.

That said, if you have a Chase Ultimate Rewards travel card like the Chase Sapphire Reserve® or Chase Sapphire Preferred® Card and transfer rewards to it from the Chase Freedom Unlimited®, it might be worth it, depending on how you redeem your Ultimate Rewards points.

You need help earning a credit card welcome bonus

The most profitable reason to pay your taxes with a credit card is to earn a welcome bonus. Lots of rewards credit cards offer big welcome bonuses to new cardholders, but you usually have to spend a certain amount within a certain timeframe to earn it. Paying your taxes with one of these cards can help you get that much closer to snagging the bonus.

For example, the Ink Business Preferred® Credit Card currently offers 100,000 points after spending $15,000 on purchases in the first 3 months from account opening. That's a big minimum spending requirement, but if you have a hefty tax bill, it could get you that much closer.

You're trying to unlock a benefit like the Southwest Companion Pass

There are some rewards credit cards that require you to spend a certain amount in a year to earn some of the card's more enticing benefits. The Southwest Companion Pass— which lets you take a designated companion with you on paid and award flights for just the cost of taxes and fees — is probably the most coveted. However, you usually have to earn 125,000 qualifying points in a calendar year to earn it.

Any points you earn from Southwest credit card, including welcome bonuses, count toward this requirement. The Southwest personal cards currently have elevated offers that can get you most of the way to unlocking this perk. 

Other credit cards offer extra rewards like free hotel nights if you spend enough in a year:

• Hilton Honors American Express Surpass® Card— Complimentary weekend night after you spend $15,000 on eligible purchases in a calendar year
• Hilton Honors American Express Aspire Card— Earn a free weekend night after you spend $60,000 on eligible purchases in a calendar year
• The Hilton Honors American Express Business Card— Complimentary weekend night after you spend $15,000 in a calendar year, and another after you spend a total of $60,000 in a calendar year
• The World Of Hyatt Credit Card— Free night at any Category 1-4 hotel after you spend $15,000 during your cardmember anniversary year

The best credit cards for paying your taxes in 2021:

• The Blue Business® Plus Credit Card from American Express
• Citi® Double Cash Card
• Chase Freedom Unlimited®
• Ink Business Preferred® Credit Card
• The Business Platinum Card® from American Express

Here are some of the best credit cards to pay your tax bill and earn valuable rewards that make up for the processing fees.

American Express Blue Business Plus 

The Blue Business® Plus Credit Card from American Express has no annual fee (See Review) and offers 2x Membership Rewards points for every dollar spent on up to $50,000 in purchases per calendar year (then 1x). Since you can redeem Membership Rewards points for travel through the Amex Travel Portal at a rate of 1 cent each, that's at least 2% back, which beats the processing fee by a hair.

However, you can also transfer Membership Rewards points to more than 20 different airline and hotel partners, and this can easily net you 3 or 4 cents per point. I used my American Express® Business Gold Card to pay my taxes last year and earned enough Membership Rewards points through the welcome bonus at the time for over $1,000 in travel. This is a business card, so you need to qualify as a small-business owner or a freelancer.

Citi Double Cash Card

The Citi® Double Cash Card is a personal card that earns 2% cash back on all purchases (1% when you buy, 1% when you pay your bill). While this alone makes paying your federal taxes marginally profitable, you can get even more value out of this card by transferring your rewards to a card that earns Citi ThankYou points (like the Citi Premier® Card) at a rate of 100 points per dollar.

That means you can effectively earn 2 ThankYou Points per dollar spent on the Citi® Double Cash Card, and depending on how you redeem them, this could yield a good value.

Chase Freedom Unlimited or Ink Business Preferred 

If you're a fan of Chase Ultimate Rewards points, either the Chase Freedom Unlimited® personal credit card or the Ink Business Preferred® Credit Card for small-business owners are great options. The former earns big in a number of spending categories and comes with a hefty welcome bonus, and the latter comes with even more bonus categories and a massive welcome offer.

Similar to the option with the Citi® Double Cash Card, if you have an Chase travel credit card like the Chase Sapphire Reserve®, you can transfer points from the Chase Freedom Unlimited® to that account and get a higher value for your points on certain redemptions. Chase also has a long list of airline and hotel transfer partners that can help you get up to 3 or 4 cents per point with a strategic transfer.

American Express Business Platinum

While it doesn't offer a high rewards rate on regular spending, The Business Platinum Card® from American Express currently has one of the most generous welcome bonuses it's ever offered — 75,000 Membership Rewards® points after you spend $15,000 within your first 3 months of account opening. Plus, new cardholders can earn 5x points on eligible US purchases on shipping, wireless telephone services, advertising in select media, office supplies, and gas stations in the first three months of account opening, up to 80,000 bonus points per category. 

If you need a little help hitting that minimum spending requirement, your tax bill might do the trick. The card also offers 1.5x points on single purchases of $5,000 or more, so if your tax bill is over that amount, your transaction is even more lucrative.

Be careful paying taxes with a credit card

While credit card rewards can be exciting to earn, they can also be dangerous. You should only pay your taxes with a credit card if you can afford to pay off your credit card bill immediately. Carrying a balance from month to month, especially on rewards credit cards with high interest rates, will result in hefty charges and can land you in unmanageable debt.

If you don't have the money to pay your taxes right away, talk to the agency about setting up a payment plan instead of floating the bill on your credit card.

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