Uncle Sam toy holding a credit card
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The day of reckoning you put off in April has nearly arrived. The tax extension deadline for filing your income tax return is Oct. 16.

You may be able to ease the financial blow if you pay your taxes with a credit card and collect valuable rewards. But you’ll have to be smart about using this strategy, as there’s a fee for paying your taxes with plastic.

There are three official IRS processors to choose from, all of which charge different fees. You’ll want to choose the processor with the lowest fee, Pay1040.com.

It charges credit card users 1.87% of the total balance, with a minimum fee of $2.59. In some cases, the processing fees themselves can be tax write-offs.

Who could benefit when they pay taxes with a credit card?

This strategy isn’t for everybody. If you don’t have the cash on hand to pay your tax bill now, you may be better off setting up an installment agreement with the IRS. If you think paying by credit card might benefit you, you should:

  • Have good to excellent credit. You’ll need this to qualify for a rewards card that offers a bonus and will pay you cash back when you use the credit card to pay your taxes.
  • Pick a card with no annual fee. Cards that charge a big annual fee may offer bigger rewards or perks, but this strategy is far less complicated to manage if you take cards that charge a fee off the table.
  • Do the math. Make sure the benefits of using a credit card outweigh the processing fee.
  • Pay off the balance immediately. This rule of thumb is always good to follow, but if you don’t have the money tucked away in a savings account, there are a number of rewards cards that offer a 0% introductory APR. This is akin to having an interest-free loan — that also rewards you for spending.

What you owe makes a difference

For people who are already shopping around for a new rewards card, this could be a good way to meet minimum spending requirements. Since you have to pay taxes anyway, you might as well enjoy some benefits.

Let’s take a look at some example scenarios of how much you can earn depending on what you owe and the card you choose. These scenarios assume you pick the cheapest processor when filing your return.

What you’ll pay in fees
Tax bill Processing fee
$5,000 $93.50
$4,000 $74.80
$3,000 $56.10
$2,000 $37.40
$1,000 $18.70

If you used a credit card you already own that pays 2% cash back to pay off a $4,000 tax bill, you’d earn $5.20 after accounting for the processing fee. That’s why opening a new card to pay the bill may be more worthy in pursuing this strategy.

Here are examples of bonuses that are worth more than the fees.

Barclaycard Cashforward World MasterCard

  • No annual fee
  • $200 sign-up bonus when you spend $1,000 during the first 90 days of card ownership
  • 1.5% cash back on all purchases

What you’d earn

If you owe $1,000 in taxes, you’d earn $196.30 from the bonus and cash-back reward minus the processing fee.

If you owe $2,000 in taxes, you’d earn $192.60.

Bank of America Cash Rewards Credit Card

  • No annual fee
  • 0% APR for 12 billing cycles on purchases and balance transfers made within the first 60 days; a variable 13.99% to 23.99% thereafter
  • $150 in online cash rewards after spending $500 in the first 90 days
  • Bank of America customers get an extra 10% bonus on redeeming rewards into a BoA account
  • 3% cash back on gas purchases and 2% at grocery stores and wholesale clubs up to $2,500 in combined spending per quarter. You’ll earn 1% on all other purchases.

What you’d earn

If you owe $5,000, you would earn $106.50 from the bonus and cash-back reward (assuming a 1% return on the tax bill) minus the processing fee.

If you owe $4,000 in taxes, you’d earn $115.20.

Chase Freedom

  • No annual fee
  • 0% APR for the first 15 months on purchases and balance transfers; a variable 15.99% to 24.74% thereafter
  • $150 bonus after spending $500 in the first 90 days
  • 1% cash back on purchases; 5% cash back on bonus categories, up to $1,500 in combined spending per quarter

What you’d earn

If you owe $3,000, you would earn $123.90 from the bonus and cash-back reward (assuming a 1% return on the tax bill) minus the processing fee.

If you owe $2,000 in taxes, you’d earn $132.60.

If you do choose to use a credit card to pay Uncle Sam, make sure you either pay off the full balance before interest kicks in or you choose a card that has a 0% introductory APR.

This editorial content is not provided or commissioned by any of the referenced financial institutions or companies. Opinions, analysis, reviews or recommendations expressed here are the author’s alone, not those of any financial institutions or companies, and have not been reviewed, approved or otherwise endorsed by any such entity. All products or services are presented without warranty. Bankrate.com is an independent, advertising-supported publisher and comparison service.

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