When it makes sense to pay your taxes with a credit card - and when it doesn't

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If you can't pay off your balance in full every month, you should avoid paying your taxes with your credit card.

• You can pay taxes with a credit card through third-party providers - not through the IRS website.
• If you cannot pay off your credit-card balance immediately, you are better off setting up a payment plan with the IRS than using your credit card to pay your taxes.
• Paying taxes with a credit card to earn a big sign-up bonus or reward points makes sense if the value exceeds the credit-card fee you will be charged.

You can pay your taxes with a credit card, but that doesn't mean it's always a good idea.

The IRS allows you to pay with a credit card through third-party partners or when you e-file your taxes through online tax services like TurboTax or H&R Block.

Paying taxes with a credit card isn't free, but sometimes it could make sense. Here's how to figure out what's best for you.

What taxes you can pay with a credit card

You can pay your annual tax return, due when you file your taxes sometime between the beginning of the year and April 15. You can also use a credit card to pay quarterly estimated tax payments, which are most common for people who are self-employed or who have freelance income. Some states, cities, and counties allow you to pay income and property taxes with a credit card as well.

Read more: The IRS says the busiest day of tax season is right around the corner, and there's a simple way to beat the rush

What it costs to pay your taxes with a credit card or debit card

The IRS works with three payment processors to handle tax payments made via debit or credit card. There are also options for paying your tax bill with a credit card when you e-file.

Debit card payments require a small flat fee, but you can just as easily pay your taxes with a bank account transfer for free. In most cases, that will be the better option.

For paying your taxes with a credit card through a third-party processor, you'll pay the following convenience fees:

• Pay1040 - 1.87% fee with $2.59 minimum fee
• PayUSAtax - 1.96% fee with a $2.69 minimum fee
• OfficialPayments - 1.99% fee with a $2.50 minimum fee

If you pay your taxes with your credit card when you file online through tax software like TurboTax or H&R Block, the fees typically start at 2.49%, but could be even higher.

When not to pay taxes with a credit card

Deciding whether it makes sense to pay an extra fee when filing your taxes depends on your card's rewards and your ability to pay it off before the next statement due date.

If you can't pay off your balance in full every month, you should avoid paying your taxes with your credit card. With average credit-card-interest rates around 17%, it is better to set up a payment plan with the IRS than pay huge interest charges from your credit card (not to mention the convenience fee). Interest rates associated with an IRS payment plan will be around 5% or so.

When to pay taxes with a credit card

If you do pay your balance off in full every month, you could be a good candidate to pay your taxes with a credit card - but only if the rewards are bigger than the fee.

If you use the Citi Double Cash Card, for example, you'll get the equivalent of 2% cash back. That's more than the fee. If you use points from Chase Freedom Unlimited, at 1.5% cash back (or 1.5x points per dollar spent), as travel rewards paired up with a premium Chase Sapphire Preferred Card, it could also make sense - when you hold the Sapphire Preferred, you get a bonus when you redeem points for travel through Chase, and you can get a higher value by transferring points to airline frequent flyer partners. Consequently, the value of each point can be well over 2¢.

Alternatively, if you're using your taxes to hit the minimum spend requirement on a credit card's sign-up bonus, you might end up getting way more than 1.87% back.

But if you don't get rewards or the value is less than 1.87%, you should only use a card if it will get you over the hurdle for a bonus. Otherwise, you will spend more than you get back in rewards!

Read more: 9 lucrative credit-card deals new cardholders can get now - including a 100,000-point Marriott Bonvoy offer

How to pay taxes with a credit card

Paying your taxes with a credit card is easy and only takes a few minutes. Head to IRS.gov or directly to your preferred payment service (like Pay1040).

When you get there, you'll need to enter your tax ID (Social Security Number or Employer ID Number) as well as your credit-card number, billing information, and a few other details.

After you pay, make sure to print out a copy of your receipt or save it as a PDF and keep it with your tax return. The IRS recommends holding onto copies for at least three years - the typical length of time the IRS would look back if you happen to get audited.

You can always get excess payments back with a refund

If you need to get a credit-card bonus that requires spending a lot of dollars, paying your taxes with a credit card could be a good strategy, but only if the rewards are worth more than the cost of the credit-card fee.

Just make sure you're also practicing good financial discipline, like paying your balances off in full each month, making payments on time, and not spending more than you can afford to pay back. Basically, treat your credit card like a debit card.

When in doubt, pay your taxes the free way - by using a direct bank account transfer.

Click here to learn more about the Chase Freedom Unlimited card from Insider Picks' partner: The Points Guy

Click here to learn more about the Chase Sapphire Preferred Card from Insider Picks' partner: The Points Guy

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