Should You Pay Your Taxes with Your Credit Card?

While you should have the necessary funds in a traditional bank account to pay your tax liabilities, this is not always an option. You cannot use a debit card to pay your taxes, but credit cards are accepted. The drawback of using a credit card is that you have to pay back the credit card company plus interest; this ultimately results in a higher cost.

Personal Credit Card Interest Not Tax Deductible

Interest accrued on personal credit cards for tax payment purposes is not tax deductible. The only credit card interest that is tax deductible is when the expense is for a business purpose, and this must be documented. Obtain a statement from your credit card company for tax purposes to determine the actual amount of business expense interest that was paid.

Small Tax Debt

Now, if you only owe a small amount of taxes, using a credit card is okay. However, at the same time, you should only use the credit card if you will be able to pay the balance off in-full at statement time, or before the bill even comes.

Use Only Zero Interest Accounts

Only pay your taxes with a credit card if it is a zero interest account. Otherwise, you end up paying more than you owed to begin with. This doesn’t make much sense, but for some individuals, it is the only option.

Closing Thoughts

Only use your credit card to pay your taxes if you have no other choice. If you end up having to make payments to the IRS and a credit card, you’re really getting hit with a double whammy. You end up paying one and half times (minimally) your original debt owed.

Image credit: Håkan Dahlström