Paying your taxes with a credit card: Is the convenience worth the cost?

What it costs to pay with a credit card

First things first: There’s a convenience fee involved. The CRA allows you to pay through a third-party service provider — either Plastiq or PaySimply, which charge 2.45% and 2.5% respectively on top of your owed taxes when you pay with a credit card.

So, for a tax bill of $3,961 through the CRA through Plastiq, for example, you’ll end up with a convenience fee of $97.04.

The provider will send your payments to the CRA for you, however you’re still responsible for making sure the CRA receives them on time.

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When it’s a good idea

There are situations where it can be beneficial to pay your taxes with a credit card — it all comes down to the rewards your issuer may offer and whether the benefits outweigh the added cost of the convenience fees.

If you use a rewards credit card, you can stock up on points and redeem them toward travel, tech, gift cards and more. Or, you might earn a welcome bonus for spending a certain amount on a new card within a specified timeframe.

You could apply for a balance transfer card with an introductory APR of 0% for the first 12 or 18 months. But make sure to pay off the balance before that period ends and the interest rate goes up.

You’ll accrue interest through the CRA when you don’t pay your taxes in full after the due date and that compounds daily. So it might make sense to pay off your taxes with a credit card if it has a lower interest rate that will give you a little breathing room.

If getting a new credit card or using an existing one isn’t an option, consider applying for a personal loan and see if that interest rate is lower than the one your credit card has.

When it’s a bad idea

It only really makes sense to pay your taxes with a credit card when you stand to benefit from it, so you need to decide for yourself whether the convenience of using a card is really worth it.

If you’re paying with a credit card that won’t get you much in rewards, compared to the fee you’re paying to process it, then no, it’s probably not a good idea. And if you can’t qualify or make use of a lower-interest balance transfer card then you might be better off with one of the CRA’s payment arrangements or a loan.

It’s also important that you’re able to pay your balance in full each month or you’ll risk racking up interest and fees and damaging your credit score.

It might make more sense to go with one of the CRA’s payment plans instead, which can help you tackle your tax debt through monthly installments. The CRA’s interest rate on overdue taxes is 5% currently, while the typical credit card interest rate is 19.99%

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Ways to help pay off your taxes or credit card

When you don’t pay your taxes on time, the CRA hits you with penalties and interest. It may eventually take legal action, such as garnishing your wages or seizing your assets, if you don’t call or make a payment arrangement. Here are some ways to bolster your income and help you pay off your taxes (or credit card):

Review your insurance rates. If you want to make some room in your budget, consider revisiting your insurance rates. Shop around and compare quotes online to find a better rate for your life insurance. Check if you can save on mortgage protection as well.

Refinance your mortgage: If you’re a homeowner, it might be time to look around for a lower rate on your home loan. Compares rates from lenders online to potentially save you tens of thousands of dollars over the life of your mortgage.

Monetize your skills and hobbies to supplement your income: Capitalize on doing the things you love. You can create an account on an online marketplace for freelancers where you can make some extra cash on the side in your spare time.

Find savings where you can: Cut back on streaming services you don't regularly use and get a library card to borrow some free movies and books. Download a cashback rewards app to earn money when you purchase your everyday essentials online and in-store.