Using a credit card to pay taxes
If you owe money to the Canada Revenue Agency, you might consider paying the tax bill using a credit card. Turns out you can use a credit card to pay a CRA tax bill as long as you pay through one of the approved payment processors. However, a credit card isn’t your cheapest option — and you’ll pay a fee of about 2.5% per payment.
Paying with a credit card could be helpful if you…
- Need time to pay off your taxes. If you face a big tax bill, you don’t have to pay it all right away. By putting it on your credit card, you can pay it off over a longer period of time. Since interest rates are high on credit cards, you could potentially do a balance transfer to avoid interest for a few months or choose a low-interest-rate credit card.
- Want to reach a minimum spend for a signup bonus? Minimum spends on signup bonuses are usually a few thousand dollars. Reach yours more easily by paying your taxes with your credit card. Just make sure that the processing fee doesn’t erase what you’d gain from your bonus.
- Can pay off your credit card balance in full. If you can pay off your credit card balance in full before the end of your billing cycle, you could avoid facing additional interest.
- Want to earn rewards or cash back? If you put your taxes on your rewards credit card, you can effectively earn points, miles or cash back. Just make sure the value of your rewards is more than the processing fee.
Avoid paying your taxes with a credit card if you…
- Have trouble keeping up with payments. It’s rarely a good idea to rack up a lot of debt on your credit card without paying it off as fast as you can. If you plan on paying only the minimum toward your balance each month, consider passing on a credit card tax payment. You’ll quickly accumulate interest that could throw you into a long cycle of debt.
- Need to keep an eye on your credit score. Putting a big charge on your credit card will raise your credit utilization ratio, which could potentially damage your credit score. If you’re looking to open a line of credit soon — such as a mortgage, car loan or credit card — it may be wise to avoid damaging your credit score.
How to pay taxes with a credit card
Before you pay the CRA with a credit card, you’ll need to choose a payment processor. There are a variety of different services you can use to pay your CRA tax bill with a credit card, including:
- PayPal
- Plastiq
- PaySimply
Once you’ve picked a processor, you’ll need to:
- File and submit your taxes to the CRA
- Select a processor and visit its website
- Choose which type of tax you’d like to pay (eg: Personal taxes owed, based on your T1 forms)
- Create a free account
- Enter the required information, including how much you’d like to send to the CRA, as well as your personal information
- Submit your billing details, including your credit card information and billing address
- Double-check all information before pressing enter