How to Pay Your Taxes Online
Your taxes are done, and you owe money. So now the question is how to actually make the payment—and what’s the easiest option? There are several ways to pay your taxes, including online methods and old-fashioned checks. Before you send money, learn about the pros and cons of each option.
Online Credit Card Payments?
Paying your taxes with a credit card is appealing—but it’s easy to lose any benefits that a credit card provides.
Rewards points commonly tempt taxpayers to use a credit card: when you pay a large tax bill, you might as well load up on points. Unfortunately, those points may end up costing more than they’re worth.
Convenience fees usually eat up any benefits you'd get from a rewards card. Expect to pay roughly 2% of your total tax bill (or more), which would add about $20 for every $1,000 that you owe. To come out ahead, you need to earn more than 2% in rewards (whether you’re getting cash back or airline miles)—and most cards won’t give you that on a tax payment. If you pay with a debit card instead, you’ll pay much less. That said, if you get a significant bonus by meeting a high initial spending threshold (when you first open the card, for example), it could be worth the fees.
If you can’t afford your tax bill, a credit card is probably not the best way to borrow (unless you have a 0% APR promotion and the ability to pay everything off before the promotion ends). The IRS allows you to make payments on your tax bill (although this may cost extra), or you could use a personal loan to get the funds you need. However, borrowing to pay taxes is not sustainable—make the necessary changes to avoid the same situation next year.
Your credit may suffer if you pay your taxes with a credit card. Credit scoring models look at how much of your available credit you’re using: if you max out your cards, it looks like you’re having a hard time managing your finances, and your credit scores will fall. That might not matter if you pay off the debt immediately, but it can cause problems if the payment coincides with a home or auto purchase. Try to keep your credit card balance below 30% of your total available credit limit.
Pay Online With Debit Cards and eChecks
Payments linked to your checking account are far less expensive than credit card payments.
Debit cards look and feel like credit cards, but you spend money from your checking account (instead of borrowing the money). Because the processing or “swipe” fees are lower, payment processors charge less for debit cards, but they still earn a profit. Fees are typically around $3 for debit card payments.
IRS Direct Pay allows you to make payments online directly from your bank account. Funds are transferred electronically via ACH, and the IRS does not charge any fee for you to make this type of payment (your bank probably doesn’t charge a fee either). To make a payment, you’ll need to type in your checking account number and bank routing information.
Is it safe? Handing out your debit card number or your checking account information is always risky. That said, the IRS and partnered payment processors use industry-standard security. Before you give anybody your account details, make sure you start from the real IRS.gov website—avoid clicking any links in emails, search results, or advertisements. At the time of this writing, the IRS is partnered with Pay1040.com, PayUSAtax.com, and OfficialPayments.com. Working with approved payment processors is as safe as giving your card or account information to any other vendor online.
Checks and Money Orders
For years, taxpayers have made payments by check, and that’s still an option. Businesses can pay from a business checking account, and checks can be used for numerous purposes—not just Form 1040. Just be sure to allow a few extra days for mail time so that you don’t pay interest or late payment penalties.
Cashier’s checks are a form of a bank-issued check with guaranteed funds. A cashier’s check is generally not required—personal checks and standard business checks are regularly accepted (just don’t bounce the check). To get a cashier’s check, you’ll need to pay a modest fee, and you may need to visit a bank branch or order one online ahead of time.
Money orders are another alternative to checks, and they can also be used for making tax payments. A money order might make sense if you don’t have a bank account (although it’s probably a good idea to get a bank account) because it’s not safe to send cash through the mail. To get a money order, visit a bank, credit union, or retail location and expect to pay a small fee.
Paying with a paper document, as you might imagine, means more paperwork. You’ll need to submit your check with a voucher or other information that tells the IRS how to apply for your payment. You'll also need to get the check mailed on time, which can be confusing—some payments must be received by a certain date, while others just need to be postmarked by the deadline.
Other Ways to Pay
There may be other ways to pay your federal taxes online, but most people pay with the options described above.
- Wire transfers are an option if you need to pay quickly. A wire transfer is a same-day transfer of “cleared” funds from your bank account to the IRS. Your bank will most likely charge a fee (around $30 or so), and you may need to visit a bank branch in-person. Some banks take wire transfer instructions online.
- PayPal is a popular way to make person-to-person payments and online purchases, but it’s not a standard method of paying the IRS. That said, it may be possible to find a third-party payment processor that takes PayPal. Before you send money or type in your password, make sure you’re dealing with a legitimate website.
Business and Other Taxes
If you’re paying your personal income taxes (Form 1040 or similar), you can make payments online using the methods above. For business taxes and other payments, you might have fewer options.
EFTPS: businesses often use the Electronic Federal Tax Payment System to make federal tax deposits and other payments (for example, Form 941 Quarterly Returns and estimated tax payments). Be sure to sign up for this system long before your tax payment is due—you’ll need to enroll, set up your bank account, and verify your identity before you can make a payment. You may need to pay with a paper check for a few cycles while you wait. If you don't have any checks, ask your bank or credit union for a few counter checks.
Local government websites: for other business taxes, check with your state and local government regulators. It’s possible to make online payments for sales taxes, unemployment premiums, and state income tax withholding in many locations.
Partially online, partially manual: some agencies are not fully online, and you might only be able to complete certain tasks online. For example, you might be able to pay a tax electronically, but you still need to mail in forms to complete your filing. Make a checklist for yourself (or your staff who handles the payments) so you know how each process is handled. This saves time figuring it all out every quarter—but keep your eyes open for increased online options so you can do less on paper.