While most people have taxes withheld from their paycheck by an employer, self-employed individuals and small business owners are required to pay taxes themselves. They do this every three months through quarterly tax payments to the federal government and their state if required.
These quarterly tax payments intend to provide the government with a steady source of income, but they also protect self-employed individuals from having to owe their entire tax liability come April 15th each year.
Either way, quarterly tax payments are never fun, mostly because entrepreneurs are forced to write a check to the government every three months.
How to Pay Taxes with a Credit Card
Still, you don’t necessarily have to write a paper check if you don’t want to. You can pay your federal and state taxes online if that works better, and you can even do it with a credit card.
The Internal Revenue Service (IRS) even spells out which third party processors are approved to accept federal tax payments with a credit card on their website. Below you’ll see which companies and websites you can use to process your federal tax bill with credit or debit, as well as how much these services charge:
As you can see, you’ll pay between 1.87% and 1.99% to pay your quarterly tax bill with a credit card. Paying with a debit card, on the other hand, only requires a flat, one-time fee.
However, there are considerable benefits that can be gained when you pay your taxes with a credit card. For starters, you can earn a considerable sum of rewards depending on how much you owe on your taxes. All you have to do to wind up “ahead” in the transaction is make sure the rewards you earn come with a higher percentage than the fee you’re paying to have your payment processed.
Not only that, but you could potentially use your tax bill to earn a significant credit card signup bonus. This is due to the fact that many of the top rewards credit cards offer 50,000 points or more when you can spend a few thousand dollars on your credit card within a predetermined amount of time, usually three months.
Finally, some rewards credit cards offer 0% APR on purchases for a limited time, which can help you avoid interest on your tax bill while these offers are in effect. Many 0% APR credit cards also offer rewards that can wipe out all or part of the fee you’ll pay to pay your tax bill with a credit card.
Best Credit Cards for Quarterly Tax Payments
Which credit card should you use to pay quarterly tax payments to the federal government? That really depends on your goals and the type of rewards you want to earn. Here are some of the top credit cards to consider for quarterly tax payments this year:
Chase Freedom Unlimited®
If you want to earn rewards without paying interest for a limited time, you should also consider the Chase Freedom Unlimited®. This card gives you 1.5% back for each dollar you spend, and you can also earn a $200 cash bonus when you spend $500 on your card within three months of account opening. There’s no annual fee, and you can enjoy 0% APR on purchases and balance transfers for 15 months, followed by a variable APR of 14.99% to 23.74%.
Chase Sapphire Preferred® Card
If your goal is earning a generous signup bonus but you want to travel, you should also consider the Chase Sapphire Preferred® Card. This card starts you off with 80,000 points when you spend $4,000 on your card within three months of account opening. That's $1,000 when you redeem through Chase Ultimate Rewards®. Plus earn up to $50 in statement credits towards grocery store purchases within your first year of account opening. You also earn 2X points on dining at restaurants including eligible delivery services, takeout and dining out and travel & 1 point per dollar spent on all other purchases. This card does charge a $95 annual fee, but the rewards you earn can be invaluable. Not only can you cash in your points for gift cards, merchandise, or statement credits, but you can use them for travel through the Chase portal or for 1:1 transfers to airline and hotel partners like Southwest Rapid Rewards, United MileagePlus, Marriott Bonvoy, and World or Hyatt.
Credit One Bank® Visa® Credit Card with Cash Back Rewards: Earn Cash Back Rewards
If you want to turn your quarterly tax payment into cash back rewards, check out the Credit One Bank® Visa® Credit Card with Cash Back Rewards. Even with less than perfect credit, qualified applicants will receive benefits such as 1% cash back rewards on all purchases, no annual fee, and a competitive APR. Terms apply.
What to Watch Out For
While paying taxes with a credit card to earn rewards or secure 0% APR may sound like a good idea, there is plenty that can go wrong. For the most part, you should only charge quarterly tax payments to a credit card if you have the cash in the bank to pay your bill in full. Since the average credit card comes with an interest rate over 17%, you won’t wind up “ahead” with rewards if you carry a balance and pay interest on your tax bill.
It is possible to benefit from 0% APR, but you should make sure you have a plan in place to pay your balance off before your introductory offer ends. If you just make the minimum payment or you take on a nonchalant attitude about paying your bill off, you could live to regret that choice when your interest rate resets.
The bottom line: Only use a credit card for quarterly tax payments if you have a plan to avoid interest and debt. If you need to borrow money to cover your tax bill, you’re better off comparing other loan options that offer fixed monthly payments and a much lower APR.
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