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The CRA doesn’t settle for bank cards instantly as a legitimate of fee. That mentioned, they do settle for third-party providers, resembling Plastiq and PaySimple, which let you use a money again or rewards bank card to cowl your tax invoice.
It looks like a wise concept. You owe in your earnings taxes — say, $2,000 — and also you assume to your self, “I can earn a tonne of rewards factors on this.” Even 2% on a cash-back bank card can flip $2,000 into $40, which is free money that’s not taxable.
However right here’s the catch (you knew it was coming): whereas the CRA accepts bank cards by way of third-party providers, these providers cost a processing payment. The charges are outrageously excessive, too, from 2.5% to 2.8%, which can principally nullify any rewards or money again you earn on the cardboard.
That mentioned, there are two cases when it is sensible to make use of a rewards bank card to pay your earnings taxes.
Low curiosity bank cards
The primary occasion is to benefit from a low curiosity bank card.
Many bank cards include low promotional APRs, which cost you much less curiosity for a sure time frame. Usually, these playing cards work in tandem with a stability switch, serving to you progress bank card debt from a card with a excessive APR to 1 with a decrease one.
However you may use a bank card with a low promotional APR to cowl a tax invoice you may’t afford. The CRA often costs about 1% in curiosity for each month you don’t pay your taxes and as much as 12% after 12 months. Many low-APR playing cards would cost you lower than 1%, and you’d have the low APR for six to 12 months.
However do the mathematics your self. You’ll pay a processing payment to Plastiq or PaySimple. Then you definitely’ll pay a small portion in APR in your bank card for each month you don’t pay your taxes again. Even with the payment, you may pay much less in general curiosity with the bank card, particularly for those who don’t plan to pay your taxes for the following six months or extra.
Earn a welcome bonus
It’d make sense to make use of your rewards or cash-back bank card to repay your taxes if it means snagging a welcome bonus.
Many bank cards include hefty welcome bonuses that you just unlock while you cost a certain quantity to a bank card. You usually have a deadline (like three months after you open your bank card account), and sure money actions don’t depend towards the bonus (like money advances and shopping for lottery tickets).
In the event you can’t meet the spending threshold earlier than the deadline, paying your taxes on a bank card may put you over. You’d snag the bonus, even when it meant paying a processing payment.
However do that solely as a final resort. These processing charges are excessive. Except you’re churning bank card bonuses (by which paying taxes with a card could be a simple method to get one), you don’t need these charges consuming into your earnings.
