Paying Taxes With a Rewards Earning Credit Card

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For those of us in the great US of A, the deadline to file your 2015 taxes is just days away (April 18th this year), and if you are in the position of owing money, then you may be wondering how to make the most of that painful payment.
The good news is you can earn miles and points by paying your federal taxes with a rewards earning credit or debit card, but the bad news is that it isn’t going to be free. Still, it can be worth it in some situations, so I’ll help you go through the options before deciding which is right for you…if any.

Paying Taxes With a Rewards Earning Credit or Debit Card

If you utilize a rewards earning debit card then your fee to pay with that card is very reasonable at just a flat fee of $2.50 – $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 the fee to do so is higher, and it is based on a percentage of the total payment amount instead of just a low flat fee.

For those curious, the fee to pay with a credit or debit card may be tax deductible, so feel free to explore that options with your tax professional or own research skills.

Fees to Pay Taxes with a 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 1.99% fee, Minimum fee $2.69
  • Officialpayments.com/fed 2.25% fee, Minimum fee $2.50

Use Rewards Credit Card to Pay Taxes.jpg

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 1.87% fee to see when it might be worth it. If I paid a $10,000 tax bill with the new 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 (assuming you have a Sapphire Preferred or Ink Plus that enables to Freedom points to be transferable Ultimate Reward points).

 

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 of sort such as 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 that spending to earn some miles and points that will likely be way more enjoyable than April 15th 18th. Just keep in mind that you will be spending money on fees in order to use your rewards earning credit card to pay taxes, so make sure what you are earning is worth more to you than what you are spending.

I also want to 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 as you will end up paying a ton more in a hurry if you are carrying a balance and paying monthly interest on a big tax bill.

Do you pay your taxes with a rewards earning credit card? 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.

Disclaimer: The comments below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Comments

  1. off topic — didn’t see a way to send you a quick message on the blog, but heads-up, my local Smiths (so probably Krogers too) is offering 4X fuel points on GC purchases for the rest of the month.

    feel free to delete this comment from the “taxes” blog post without offending me.

  2. Waiting today to see if I’ll have to pay anything, but if we do, I’ll use Plastiq. They’re running a tax promo for 1.75% if you pay with a MasterCard. I’ve got some fee free credits for signing up for the service using someone’s promo code, so I’ll be able to defray the cost. I tried it once already for a small payment and it was pretty awesome!

    Shameless plug, here’s my referral link 🙂 https://try.plastiq.com/400395

  3. Here’s a better idea. Use the Chase freedom 5X grocery store bonus to buy Visa gift cards. Use the gift card to pay taxes. Cost to buy GC is ~1.2%=$6/$500. Payment with gift card is at 3.49/payment but you can call and pay to combine gift cards.

  4. Last month my wife and I picked up 4 of the SPG cards with the increased 35,000 bonus. That added up to a lot of spend in 3 months. Owning 2 businesses, it helps a lot being able to put our quarterly estimates and taxes due on the cards. Fees are minimal when we figure what we are getting in return.

  5. You forgot to mention that paying fees to pay your taxes is tax deductible I believe, so you can come out even more ahead. Use a bank of america travel card to get 2.625% cash back minus fees I think is a good way. Over pay your taxes to maximize it.

  6. Keep in mind that the cost of the fee is deductible next year, and at a 35% tax rate that would make the rewards greater than the cost (assuming the rewards are not taxable income).

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