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Today marks Good Friday, and that means this weekend is Easter, and next week brings us Federal Tax Day Tuesday. The good news if you owe taxes is that you can earn miles and points by paying your federal taxes with a rewards earning credit or debit card. You can also enter to win one of 1,000 free JetBlue flights if you happen to owe taxes…
The bad news is that paying your taxes with a credit card is not free. It can be worth it in some situations, but you should do the math and think through your situation before making a knee jerk decision on whether or not using a rewards earning credit card to pay your taxes makes sense. Let me walk you through some of the math and options to help decide if it is worth it in your situation.
Paying Federal Taxes With a Rewards Earning Credit or Debit Card
If you utilize a rewards earning debit card to pay your federal taxes then your fee to pay with that card is very reasonable at just a flat fee of $2.25 – $3.95, depending on the provider you choose and the amount you owe. However, rewards earning debit cards are very scarce these days, so for those of us who instead want to use a rewards earning credit card to pay taxes, the fee is higher.
For those curious, the fee to pay with a credit or debit card may itself be tax deductible, so feel free to explore that option with your tax professional or your own research skills.
Fees to Pay Federal Taxes with a Rewards Credit Card
The IRS has outsourced the processing of credit/debit card processing to third parties, and the fees to pay your federal taxes with a credit card currently are:
- Pay1040.com 1.87% fee, Minimum fee $2.59
- PayUSATax.com 1.98% fee, Minimum fee $2.69
- Officialpayments.com/fed 2.00% fee, Minimum fee $2.50
You can see exactly which types of credit cards each of these companies accept here, but all three accept Visa, MasterCard, American Express, and Discover, so all the major rewards earning credit cards are fair game.
Is it Worth it to Pay Taxes With a Rewards Earning Credit Card?
Let’s use an example payment amount of $10,000 utilizing the Pay1040.com with their 1.87% fee to see when it might be worth it to pay your federal taxes with a rewards earning credit card. If I paid a $10,000 tax bill with the Chase Freedom Unlimited that earns 1.5x on all charges, that would come to a fee of $187 to earn 15,000 Ultimate Reward points.
That breaks out to paying 1.24 cents per point, which is neither terrible nor amazing, so only you would know if you are coming out ahead at that rate. Personally, I always get more than 1.24 cents in value from my Ultimate Rewards points by leveraging one of my premium Ultimate Rewards cards to transfers to partners like Hyatt and United, so I would come out ahead in that scenario.
In another example, if you paid that $10,000 bill with a Barclaycard Arrival Plus™ World Elite MasterCard® that earns 2x on all charges, then you would still pay the same $187, but you would earn 20,000 points worth $200 towards travel (plus you get 5% of your redeemed points back), so you would certainly come out ahead, though not by a ton. The Starwood Preferred Guest® Credit Card or Starwood Preferred Guest® Business Credit Card are also popular options for paying tax bills since SPG points are very valuable and otherwise relatively hard to earn. At a 1.87% fee, that is essentially the same as buying SPG points for 1.87 cents each.
If you then transfer your SPG points to participating airlines at a rate of 20,000 SPG points = 25,000 airline miles with American Airlines, Alaska, Delta, etc. that is the same as purchasing those airline miles at a rate of about 1.5 cents each, if you have paid 1.87 cents per SPG point.
Another thing to consider is whether you have an offer on any of your cards that triggers a bonus after you spend a certain amount within a certain timeframe. Whether that bonus is a minimum spending requirement to trigger a sign-up bonus, a bonus built-in to the card, or a temporary offer you have been targeted for, it can sometimes be worth it to spend a little on a transaction fee via paying taxes in order to earn the bonus miles/points/nights/status that may be offered by one of your cards.
Again, you will need to do the math to determine how much you are paying in fees to earn that bonus to determine if you are coming out ahead.
Things to Keep in Mind When Paying Taxes With a Credit Card
Tax time is painful for many of us, but it does represent an opportunity to leverage necessary spending to earn some miles and points, if the math is right. I know this is a topic that is often glossed over, but I want to also offer the reminder that if you are using a credit card to pay taxes because you don’t have the cash right now to cover the bill, then I would give huge preference to using whatever card you have that charges the lowest interest rate.
The Barclaycard Ring™ Mastercard® has no annual fee and a 0% introductory APR for purchases made in the first 15 months…and even for balance transfers made in the first 45 days.
Do you pay your taxes with a rewards earning credit card to earn miles and points? Which one do you use?
Editorial Note: The opinions expressed here are mine and not provided, reviewed, by any bank, card issuer, or other company unless otherwise stated.