Paying 2018 Taxes With a Rewards Credit Card

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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.

View from the St. Regis in Miami

 

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.

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. We did our taxes using Turbo Tax and went through the SWA portal to get 1000 Rapid Rewards. Unfortunately the 1000 don’t count toward the SWA Companion Pass though.

    • Yes, very smart to stack that and thanks for mentioning. Bummer those bonuses don’t count towards the CP!

  2. The Chase PayPal idea is great. I was researching this this morning and you are the first I saw suggesting this. Thanks!

  3. Just a warning: I usually pay my taxes every year using my Amex SPG credit card since I use think it is a good deal to use the points to stay in hotels like St Regis which usually cost close to $1,000 per night in Europe. This year I had to pay a lot in taxes. I was not aware of my Amex SPG credit limit and paid using it. Maybe it was my fault but I immediately got an email from Amex saying they accepted the charge but I should call them since I had gone over my credit limit. The person I talked was really nice and said they just wanted to check the charge and I should not worry about the limit since I was a great customer bla bla bla… Well, in 3 days I received an email from Credit Karma saying there was a change in my credit score. For my surprise my credit scored dropped 169 in 3 days. It says I went way over my credit limit. Well, I paid the statement immediately and will see if it bounces back.

  4. What is your thoughts on the BofA Premium Rewards card? I moved $100k to Merrill Lynch and get 2.625% cash back on my card?

    • Those who can get 2.625% back with that card thanks to BOA relationships are in a good position for sure as that’s an easy win.

  5. I ended up getting a tax refund, so no need to pay taxes. On the other hand, that tax refund can be used for future trips.

    • I largely wrote about options that make you come out more ahead than most of the cashback cards I’m familiar with, though the Freedom can be used as 5% cash back, so that is a very solid option.

    • Duh. You have the graphic in the article! I read the last couple paragraphs as not clear if you could use samsung pay…

      • Yes, it makes me hopeful too. It might work, but I went to the site, did a test, got to the payment screen, and don’t actually see those options. I also don’t see them listed in their FAQ, so I remain unconvinced it is truly operational despite the graphic until I hear from someone who got it to work.

        • Thanks for sharing this – Chase Freedom Paypal 5X is a great idea!

          Unfortunately the Altitude Reserve does NOT code as 3X – at least using Samsung Pay. I did a test with all 3 tax payment sites last month using my galaxy phone and only earned 1X.

          Blue Business Plus seems to be my best option as I can organically hit the Chase Freedom 5X at grocery stores.

          Don’t forget you can reduce with withholding at your employer by increasing exemptions. You can then pay estimated taxes each quarter if you want to earn even more points.

  6. Any clue if you pay a partial payment if the IRS will adjust how much they auto withdrawal from your checking account? I currently have it set up so my taxes are going out in a few days but would like to pay at least part of the tax bill with a card. Anyone with any experience with this?

  7. Some state income tax payments can be made using a credit card without a fee. My state(SC) is one of them. I hate when I owe them, but using a rewards card is like getting a rebate from the tax man.

  8. disappointing that payusatax.com is the only one of the three that shows insecure in two different browsers. Not sure if I will go forward.

  9. I paid some taxes with checkout Paypal using the Chase Freedom card, but I only got the 5% on the fee, and not the payment. Online only the fee says Paypal and not the payment, even though I used Paypal. Did this happen to anyone else?

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