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Tax day is upon us next week on April 17, 2018, and if you are one of the millions of Americans that owe taxes by that date, then it makes sense to think about whether you should pay your taxes with a rewards credit card. You can pay your federal taxes with a credit card, but whether or not you should is a trickier question as there is a fee for using a credit card for that payment.
How much does it cost to pay taxes with a credit card
The fee to pay your taxes with a credit card varies a little based on which company processes the payment. For 2018, the fees to pay your taxes with a credit card vary from 1.87% – 1.99% of the total amount charged.
- Pay1040.com 1.87% fee, minimum fee $2.59
- PayUSATax.com 1.97% fee, minimum fee $2.69
- OfficialPayments.com/Fed 1.99% fee, minimum fee $2.50
On the low end of the fee spectrum, that means that paying a $10,000 tax bill with a credit card would be $187 in fees at a 1.87% rate. If you are considering paying taxes with a rewards credit card to earn miles or points, then you want to be sure you are earning more value from the points than you are spending in fees. If you are considering paying taxes with a credit card because you don’t have the cash on-hand to cover your tax bill right away, then I highly recommend not worrying about earning rewards, and instead, use a card with the lowest interest rate.
Assuming you want to pay taxes with a credit card in order to earn rewards, and you will pay the bill off shortly thereafter, here are some cards to consider.
Use your tax payment as a quick way to hit a spending requirement
If you have a new credit card with a high spending requirement that you need to hit to trigger your welcome bonus, then putting a tax bill on there can be a quick and easy way to earn those points. For example, the SPG Business Amex recently had a now-expired welcome bonus of 35,000 SPG points after $7,000 in spending. If you charged a $7,000 tax bill to that card at 1.87%, it would cost $130.90 in fees, but the 35,000 bonus SPG points you would earn in the process are easily worth more than $700 in many situations.
Trigger an annual spending bonus
If you have a credit card with a built-in annual spending bonus, such as the new Barclays Arrival® Premier World Elite Mastercard, it could also make sense to use that card for your tax payment. If you charged a $15,000 tax bill on the Barclays Arrival Premier World Elite Mastercard with 1.87% fee, you would pay a fee of $280.50 and would earn the normal 2x miles on the charge. With that amount, you would have then charged enough to earn the 15,000 annual bonus mile payout in addition to the 30,000 regular miles. In total, you could earn 45,000 miles with $15,000 in spending on that card. Those 45,000 miles are worth $450 in travel, which is obviously a good deal even factoring in the $280.50 fee.
Earn 5x points paying your taxes with the Chase Freedom
It’s not just those with big tax bills that can come out ahead paying that bill with their rewards-earning credit cards. Anyone who has cards that earn points at a rate higher than 1x mile per dollar may be able to come out on top. One card that is particularly well-suited for tax payments right now is the Chase Freedom that awards 5x at PayPal this quarter, up to the $1,500 quarterly max, as long as you activate the bonus category by June 14, 2018.
PayUSATax.com charges a 1.97% fee, but they allow you to pay your taxes through PayPal. If you had your Chase Freedom attached to your PayPal account, you could earn 5x points on that charge going through PayUSATax. You can transfer points earned via the Chase Freedom to Ultimate Rewards transfer partners such as Southwest, United, and Hyatt if you also have a premium Ultimate Rewards cards like the Sapphire Preferred. Even if you just used the points earned on the Freedom as 5% cash back, you obviously come out ahead of a 1.97% fee, up to the quarterly 5x max.
Other rewards credit cards that are good for paying taxes
While you probably don’t want to pay taxes with most rewards cards that earn just 1x mile per dollar charged, there are a few cards that can make sense to consider outside of the situations already mentioned. As an example, the United Club Card earns 1.5x miles on all purchases. If you value your United miles at 1.6 cents each, then you are getting 2.4 cents in value per dollar charged, and would then ‘only’ lose 1.87 cents in the fee. This means you are still coming out ahead using the United Club card to pay taxes, just not by very much.
Another good card to consider for charging tax payments is The Blue Business℠ Plus Credit Card from American Express. This card awards 2x Membership Reward points on the first $50,000 in purchases each year. It is not hard to get at least 1.5 cents in value from a Membership Reward point when you transfer to travel partners, so that would mean you are likely earning at least 3 cents in value per dollar charged. You again will lose at least 1.87 cents per dollar charged in fees, but you would still come out ahead in my book.
Another cool thing to consider is that the US Bank Altitude Reserve Card earns 3X points when using Apple Pay and similar mobile wallet payments. I know that you can pay for using TurboTax with Apple Pay, but I don’t know offhand of any way to pay your actual tax payments using Apple Pay or similar. If there is a way to do pay your taxes using Apple Pay or Samsung Pay, then earning 3x points on the Altitude Reserve card would be a fantastic play.
We will likely pay our 2018 taxes with a rewards earning credit card since I have rewards cards that earn more than 1x point per dollar, and I know I can stretch the points to a value that outweighs the fee. Which credit card will you use to pay your 2018 tax payment?
Editorial Note: The opinions expressed here are mine and not provided, reviewed, by any bank, card issuer, or other company unless otherwise stated.