Should You Ever Pay Your Taxes With a Credit Card?

The IRS allows taxpayers to make payments with a credit card, which can be an attractive option if you're in a financial crunch or you want to earn points.

But just because you can pay taxes with a credit card doesn't mean you should. Your credit card tax payment will be subject to processing fees and interest, which can make your tax bill more expensive.

How Can You Pay Your Taxes With a Credit Card?

If you decide that paying your taxes with a credit card is the right move for you, the process is fairly simple. Once you determine the amount you owe, visit the IRS payment page, go to the "Pay Your Taxes Now" section and select "Debit Card or Credit Card." Select a preferred processor, and choose "Make a Payment."

Other steps include specifying the type of taxes you're paying; entering your taxpayer information, payment amount and credit card number; and submitting the payment, says Josh Zimmelman, owner and founder of New York-based Westwood Tax & Consulting.

The IRS payment page shows a list of approved credit card processors, along with the requirements for paying with a debit card, credit card or digital wallet. Credit card payment processing fees are:

-- Pay1040: 1.87% fee, minimum fee of $2.59

-- PayUSAtax: 1.96% fee, minimum fee of $2.69

-- Official Payments: 1.99%, minimum fee of $2.50

You also have the option to pay federal taxes with a credit card via online tax preparation software, including TurboTax and H&R Block, but you may pay even higher rates than with IRS payment processors. For example, you'll pay a 2.49% processing fee with H&R Block.

You don't have to pay the higher fee, however. Even if you file with a tax service, you can make payments with one of the three approved credit card processors.

[Read: Best Business Credit Cards.]

Is It Worth Paying Taxes With a Credit Card?

Despite the cost, there are some benefits to charging your federal tax payment to a credit card. These include:

-- Earning rewards. If you have a credit card that offers generous rewards, you might want to pay your tax bill with the card to rack up points and then pay the balance immediately. Just be sure you're earning rewards at a higher rate than the processing fee. Processing fees have come down a bit in recent years, while rewards have grown, meaning it is possible for the rewards to outweigh the fee with certain cards.

-- Meeting a spending bonus. Similarly, if your credit card offers a rewards bonus for meeting a certain spending threshold on an annual basis or at the end of the year, your tax bill could be a large enough expense to get you there. This can be especially helpful for meeting the particularly high spending minimums for some lucrative travel rewards cards. Again, you need to pay the balance in a timely manner to avoid accruing interest and canceling out the value of the bonus.

-- Buying more time. Paying taxes with a credit card is often driven more by the need for financing than rewards potential. "We've had several clients over the years with tax bills that they could not pay," Zimmelman says. "We recommended that they apply for a new credit card with an introductory 0% interest charge for 12 months. The only extra cost is the merchant processing fee." He adds that compared with the interest and penalties associated with an IRS installment plan, "this was a huge savings." The key, though, is to pay off the balance before the introductory APR period is up.

[Read: Best 0% APR Credit Cards.]

On the other hand, there are potential downsides to paying your taxes with a credit card, including:

-- When fees outweigh rewards. Rewards must be worth more than the fee to pay with a credit card. For example, if you charge $1,000 to your rewards credit card that pays 1% cash back but also pay a processing fee of 1.99%, you'll end up losing about $10.

-- Higher credit utilization. One major factor affecting your credit score is your credit utilization ratio. This is how much of your total available credit you're actually using. For example, if you had $5,000 in available credit and carried a balance of $2,000, your credit utilization would be 40%. If your utilization rate is too high, your credit score can take a hit. Experts recommend keeping it below 30%, but the lower, the better. By charging a large tax bill to your card, you could put yourself in danger of pushing your utilization too high, so be sure you have plenty of available credit before you pay taxes with a credit card. High credit utilization could be even more of an issue in coming years because of the new FICO scoring model, so it's a good idea to keep balances under control.

-- Interest charges. If you're unable to pay off your credit card balance right away, you'll pay interest on your tax bill and it will continue to accrue each month that you carry a balance. Considering that the average minimum credit card interest rate hovers close to 17% these days, that's a hefty fee to incur paying the IRS using a credit card, and it's much higher than what the IRS charges for an installment plan.

Are Credit Cards the Cheapest Way to Pay Your Tax Bill?

If you're faced with the choice between paying by credit card and not paying at all, charging may be a good idea. Tricia Rosen, founder and principal of fee-only financial planning firm Access Financial Planning LLC, says the penalties and late fees assessed by the IRS for not paying "can be pretty onerous and accrue quickly."

But Rosen says if you have the cash available to pay your tax bill, it generally doesn't make sense to use a credit card because of the potential for interest.

Let's say you have a $1,000 tax bill you can't pay right away and need six months to pay it off. At 15% APR, you'll pay $44 in interest over six months, plus a $20 processing fee to make the transaction, for a total of $64 in interest and fees. If you earn $10 cash back (at a rate of 1% cash back), you'll effectively pay $54 to finance your $1,000 tax bill over six months.

[Read: Best Rewards Credit Cards.]

An installment plan with the IRS is likely to be less expensive. If you can pay off your tax bill within 120 days, it costs $0 to set up an installment plan, though you will be subject to interest on the balance. And unlike paying with a credit card, as long as you make your payments on time, an IRS payment plan doesn't impact your credit score.

But no matter what, make sure you file your taxes on time, even if you don't have enough money to pay right away, Zimmelman says. "An extension gives you extra time to file without penalty, but not extra time to pay."

Casey Bond is a seasoned personal finance writer and editor. Her work has appeared in a number of major national publications including U.S. News & World Report, Yahoo Finance, MSN, The Huffington Post, Business Insider, Forbes and others. Follow her on Twitter @CaseyLynnBond.