April 15th is getting closer and if you haven’t paid your taxes yet, you don’t have much time to spare. Borrowing the money to pay what you owe isn’t ideal but it may be the best choice if you’re not comfortable being in debt to the IRS. MyBanktracker weighs out the pros and cons of paying taxes with a credit cards versus getting a personal loan from your bank.

Here’s what to consider if you’re considering paying your taxes with a credit card vs. a bank loan. Image via Shutterstock

How to pay taxes with a credit card

The IRS authorizes several third-party companies to process credit card payments from taxpayers. The IRS lists them here, along with links to each company’s payment website. You just click the link to the company you want to use and select Personal or Business tax payments. You can pay your taxes due for the current year, your prior year’s tax bill, estimated taxes or payments for an Installment Agreement.

Once you choose the type of taxes you’re paying, you’ll need to enter some basic information to process the transaction. This includes:

  • Your name and mailing address
  • Social Security number
  • Email and telephone number
  • Amount you’re paying

The next step is to enter your credit card information. You’ll have a chance to verify that everything’s correct before sending payment. At this time, you’ll also be able to see what kind of fee the processing company is charging you for using your credit card.

Comparing convenience fees

Every company that collects payments on behalf of the IRS charges a fee for this service. The fees are calculated as a percentage of the total amount you’re paying. If you’re using a debit card instead, you’ll pay a flat convenience fee. We’ve included a table below listing what each company charges for credit card payments.

Company NameCredit Card FeeMinimum Convenience Fee
PayUSAtax.com2.29% for VISA, 1.87% for all other cards$2.79
ValueTaxPayment.com2.29% for VISA, 1.87% for all other cards$2.79
OfficialPayments.com2.35% for all cards$3.50
ChoicePay.com1.88% for all cards$2.75
Pay1040.com1.87% for all cards$2.59
Businesstaxpayment.com1.87% for all cards$2.59

Before you whip out the plastic to pay, you need to calculate just how much the fee is going to cost you. For example, if you owe $5,000, the fee would run you $93.50 at the lowest end of the scale. At the high end, you’d pay $117.50. The fee is added on to your total bill, which increases the amount you’re paying interest on if you can’t pay it off right away.

Tip: Taking a cash advance to pay your tax bill allows you to avoid the credit card processing fees, but your card issuer will charge you 3 to 5 percent fee for this service.

When paying the fee makes sense

There are a couple of different scenarios where paying taxes with a credit card can work to your advantage. If you have a rewards credit card that has a minimum spending requirement to qualify for a bonus, charging your tax bill can easily help you to meet it. The U.S. Bank FlexPerks Select+ American Express Card, for instance, offers 10,000 bonus points when you spend $1,000 in the first four months.

Paying with your credit card is also a smart move if you’re able to earn cash back that exceeds the convenience fee. Most cards offer the highest cash back in selected spending categories but there are a fee that allow you to earn a flat amount of cash back on everything you spend.

Fidelity’s Investment Rewards American Express Card is one that pays 2 percent back on all purchases. If you charged $5,000 to the card with a 1.87 percent convenience fee, the $100 cash back you’d earn would cover it with a few dollars left to spare.

Finally, paying taxes with a credit card is a smart move if you’re able to take advantage of a zero interest balance transfer offer. As long as you’re able to pay the balance off before the promotional period expires, using your card isn’t going to cost you anything beyond the fee. If you’re looking for a good deal, the US Bank Visa Platinum Card currently offers zero percent interest on balance transfers for the first 15 months.

Tip: If you’re opening a new rewards credit card account to pay your taxes, look for one that doesn’t charge an annual fee.

Borrowing from the bank to pay your taxes

Getting a personal loan from your bank or opening up a line of credit allows you to sidestep the fees that go along with processing a credit card payment, but it usually means jumping through a few more hoops. You’ll have to apply for a loan with your bank or credit union, which means filling out paperwork and providing documentation of your income, assets and debts. If you’ve already got a line of credit available on a credit card, the convenience can outweigh the fee.

The other thing to keep in mind with a bank loan is that you’re going to have to pay interest on it. The kind of APR you qualify for depends on how much you want to borrow, the loan term and your credit history. Generally speaking, rates can range from as low as 5 percent to as high as 20 percent, which is comparable to what you’d pay to a credit card company. We’ve included a table to give you an idea of how loan rates stack up at some of the top banks.

Bank NameLoan TermAPRPersonal Loan Limits
CitibankTerms range from 12 to 60 months10.74% to 22.24%, based on creditworthiness$500 minimum, $50,000 maximum
PNC BankTerms range from 6 to 60 months7.74% to 9.65%$1,000 minimum, $25,000 maximum
SunTrustTerms range from 24 to 84 months1.99% to 9.99%$5,000 minimum, $100,000 maximum
TD BankTerm lengths vary, up to 60 months9.81% to 9.99%$2,000 minimum, $50,000 maximum
Wells FargoTerms range from 12 to 60 months7.25% to 11.25% $3,000 minimum, $100,000 maximum

If you’re thinking of getting a loan from the bank, comparing the APR to what you’d pay in interest and fees to the credit card company can help you decide which option is the most cost-effective.

We’ve already covered what a $5,000 tax bill would cost in terms of the fee if you used a zero percent interest credit card. Now, if your card charges you a 15 percent interest rate and you’re able to pay $250 a month, it would take 24 months to pay it off and cost you close to $800 in interest. If you had a two-year bank loan with a 7 percent APR and paid the same $250 monthly, you’d pay the debt off two months earlier and save about $450 in interest.

In that scenario, the bank loan is obviously the better choice but getting that lower rate ultimately goes back to how good your credit is. If your credit score isn’t that great, your rate won’t be either. Besides that, you’re not going to be earning miles or cash back when you go with a bank loan in lieu of a credit card.

Did you know? Personal loans typically come with a fixed rate but if you choose a line of credit instead, you’ll be subject to a variable rate.

Final thoughts

When you have no other way to pay your taxes, using a credit card is usually the easiest way to cover the bill. The trick is to pick a card that offers both a low interest rate and rewards that offset what you’re paying in fees.

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