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Using a credit card to pay taxes
It's tax time, and you're about to send money to the CRA – how will you pay?
When you owe money to the Canada Revenue Agency, there are plenty of ways to pay your tax bill. Whether you pay directly from your bank account or you opt to pay cash at your local Canada Post office, you’ve got options that will work for your needs.
But how about paying your taxes with a credit card? The answer is yes, you can use plastic to pay your CRA bill — as long as you pay through one of the approved payment processors. However, a credit card isn’t your cheapest option: You’ll pay a fee of about 2.5% per payment – but paying with a credit card could come with specific benefits.
Why you should — and shouldn’t — pay taxes with a credit card
Before paying your taxes with a credit card, weigh the benefits and potential drawbacks.
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.
Consider an installment agreement
If you’re self-employed and owe over $3,000, or you simply can’t pay your tax bill in full, there are ways to pay the CRA installments throughout the year. Depending on your situation, you can likely work out a repayment schedule with the CRA. Instead of paying interest and fees on a credit card or a personal loan, you can instead focus on making your repayments directly back to the government.
To be approved for payments, you will usually need to prove that you’ve tried to cut down on your expenses and that you’ve tried to borrow money from elsewhere. Additionally, you’ll have to supply lots of documentation including your income and expenses, assets and any liabilities. If you’re self-employed, you’ll simply need to owe more than $3,000 in taxes to be approved for installment payments.
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
Get the full list here.
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 (ex. T1 Personal Tax).
- 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.
Find the right credit card for you
Which card types are accepted by the CRA?
All of the major card networks — Visa, Mastercard and American Express — are usually accepted, however it will depend on the payment processor you decide to use.
Using a personal loan to pay the CRA
What fees will I pay?
Let’s take a look at the fees of some of the most common payment processors.
| Processor | Credit card fee |
|---|---|
| PayPal | 2.29% |
| Plastiq | 2.5% |
| PaySimply | 2.5% |
Other ways to pay the CRA
- Direct deposit
- Interac e-Transfer
- Wire Transfer
- PayPal
- Other third party services
- Pay in person at Canada Post or a financial institution
- Cheque
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