When it comes time to pay your tax bill, we’ve all been tempted with the idea of paying with a credit card.

With a large bill, there’s the potential to earn rewards, right?

This is the tradeoff:

• You can earn rewards paying with a credit card, but,
• You will pay a percentage fee when paying taxes with a credit.

Your decision is this – are the rewards greater than the fees?

Let’s dig in.

How Much Does It Cost to Pay Taxes With A Credit Card?

To pay the least in fees, you need to make a direct payment using Pay1040 or ACI Payments. If you make a direct payment, you will pay:

This fee is far lower than if you pay your taxes through a tax preparation service or software, as you’ll next.

The IRS lists the convenience fees for each of the IRS e-file and e-pay service providers:

The minimum fee is 2.49% with PAY1040 and HRBlock and the highest fees are clocking in 2.95% with TaxBandits, Taxhawk, and TurboTax. The minimum fees are listed too but if you’re considering paying with a credit card for rewards, the minimum is unlikely to impact your decision.

As you can see, using an e-file or e-pay provider increases the cost.

Should I Pay With a Credit Card?

Next, you have to identify a credit card that will give you more rewards than what you pay in fees.

If we assume you are paying the minimum, which is 1.75% when you use PAY1040 directly, there are only a handful of cards that work.

Fidelity Rewards Visa Signature Credit Card

The Fidelity Rewards Visa Signature Credit Card is an unlimited 2% cash back card when you get the cash back deposited into a Fidelity account. It has no annual fee or caps and limits on the cashback, so this is a card that could work.

The challenge here is that the fee is 1.75% and the cashback is 2.00% – that leaves you just 0.25% in rewards for your effort. That’s 25 cents for every $100 of taxes paid – is that worth your time?

U.S. Bank Smartly Visa Signature Card

The U.S. Bank Smartly Visa Signature Card is another option as it lets you earn up to 4% cash back on every purchase. The base earning is 2% but if you have a large qualifying balance, the cash back rewards increases up to 4%.

• With a $5,000 – $49,999 balance, the card earns 2.50% cashback.
• With a $50,000 – $99,999 balance, the card earns 3.00% cashback.
• With a $100,000+, the card earns 4.00% cashback.

A good way to achieve this, assuming you have $100,000 to move around, is to open an investment account and put it into a low cost index fund. This gets you 4% cash back on the card without a significant change to your situation.

This could be significant enough to be worth your time setting up, especially since you could use the card for other purchases and get 4% cashback – which is significantly higher than many other cards.

High Welcome Reward Credit Cards

If you had your eyes on a credit card with a significant welcome bonus and high initial spend requirement, paying your taxes (even with the fee) could put you over the top. With many of these cards offering at least 1% cash back, it helps soften the fees.

Here are a few cards worth considering:

Reality: It’s Rarely Worth It

It’s rarely worth it to pay your taxes with a credit card.

First, it depends on how much you expect your bill to be. If it’s a few hundred dollars, the return is not going to be worth your time. Even at $1,000 – 1% is only ten dollars.

Next, even if it’s sizable, there are very few cards that exceed the near-2% fee hurdle. And the ones that do, barely clear it. The U.S. Bank Smartly card is the rare exception but you have to move $100,000 to U.S. Bank – only you know if it’s worth your time.

Finally, you could use it to get the welcome bonus on a new credit card. Getting a new card can be fairly quick so if that’s the route you wish to pursue, I’d get it now so you have it ready for when you pay your taxes in April.