FOSTER CITY, Calif.,
Feb. 25, 2021 /PRNewswire/ -- As
millions of Americans embark on the dreaded annual task of filing
taxes, CardRatings.com introduces a new guide to help navigate
issues surrounding credit cards and the IRS. The leader in online
credit card ratings answers tricky questions that include, "Are my
credit card rewards taxable?" and "Is it advisable to pay taxes
with a credit card?"
Find the new resource here: 2021 Guide to Credit Cards and
Taxes
Are credit card rewards taxable?
Sometimes credit card rewards have to be reported to the IRS;
other times, it is not necessary. Typically, the IRS views
credit cards as rebates and most rewards are not taxable, according
to experts.
One example of a taxable credit card reward is when money wasn't
spent to earn that reward. For instance, some introductory offers
for new credit cards don't require any spending to reap the
reward.
Is it a great idea to pay taxes with a credit card?
This can be confusing for both tax filers and tax accountants.
There are pros and cons to paying taxes with a credit card.
One of the attractive "pros" to paying taxes with a credit card
is the ability to earn rewards, but credit industry specialists
usually advise against using credit cards to pay taxes just to earn
some every day rewards; that's because the fees that accompany the
tax payment will offset the minimal rewards that could be
earned.
"Paying taxes with a credit card will incur a transaction fee
and in 2021 that fee ranges from 1.96%-1.99% of the amount paid,
depending on the service that is used," stresses Brooklyn Lowery,
CardRatings' senior managing editor and credit card expert. "Paying
that fee to earn just 1% back likely isn't wise, but paying the
bill and earning a good-sized signup bonus that will be worth more
than the fee when redeeming the rewards is perhaps worth
considering."
Here are the best credit cards to pay taxes and the reasons why
they're the best choices:
- Chase Sapphire Preferred Credit Card: The cardholder
must spend $4,000 in three months to
earn the signup bonus, and that bonus could be worth a great deal
thanks to all the Chase Ultimate Rewards travel partners.
- Discover It Cash Back: Discover matches all the
cash-back earned during the first year as a cardholder. A large tax
bill could generate substantial cash back that will be matched at
the end of the first year.
- Capital One Venture Rewards: This card earns two miles
per $1 spent on all purchases,
meaning at least 2% back on the tax bill. Plus, cardholders can
earn a welcome bonus after spending $3,000 in three months.
- Ink Business Preferred: The signup bonus is substantial
(100,000 points), but it's necessary to spend $15,000 to earn it. A hefty tax bill could go a
long way toward earning a bonus and the points earned could be
worth well more than the transaction fee.
- American Express Platinum Card: Again, the welcome offer
is substantial at 75,000 Membership Rewards points, but it requires
spending $5,000 in six months to get
it.
"Those who decide to pay their taxes, whether estimated or
annual, with a credit card should pay off credit card balances as
soon as possible, ideally in that same billing period," adds
Lowery. "Carrying a balance will wipe out any rewards earned. In
fact, if the cardholder is already carrying a balance on a card and
has a tax refund coming, they should certainly consider using the
refund to pay down revolving credit card debt to save on interest
and possibly improve credit card scores, too."
Lowery is available for comment and can expand on the
relationship between taxes and credit cards, including additional
reasons to pay taxes on a credit card, what to consider for
business owners with credit card rewards and more.
About CardRatings
CardRatings is owned and operated by QuinStreet, Inc. (Nasdaq:
QNST), a leader in providing performance marketplace technologies
and services to the financial services and home services
industries. QuinStreet is a pioneer in delivering online
marketplace solutions to match searchers with brands in digital
media. The company is committed to providing consumers with the
information and tools they need to research, find and select the
products and brands that meet their needs. CardRatings is a member
of QuinStreet's expert research and publishing division.
CardRatings innovated online credit card ratings and has been
offering independent ratings and reviews of credit card offers
since 1998. The website collects and maintains data on more than
700 credit card offers and carefully compiles objective lists of
the top credit cards by card type, making it easy for consumers to
find the right card to fit their needs. Sign up for the bimonthly
newsletter here.
Twitter: @CardRatings
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Media Contact
Charlene Arsenault
Media Outreach Specialist
508-832-8918
carsenault@quinstreet.com
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SOURCE CardRatings.com