Advertisement

Paying Taxes With a Credit Card for the Points: Worth It?

by on April 15, 2011 · 21 comments

in American Express, Chase, Credit Cards, Points Guy Pointers

This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Policy, visit this page.

Bumping this post due to Tax Day relevancy.

It’s that time of the year – when millions of us cringe and cover our eyes, then write Uncle Sam a check for those taxes. So, instead of sending a check which doesn’t earn points, can you instead use a points/miles earning credit card for those pesky payments? Yes. Is it worth it? It depends.

There are a bunch of sites that will process your tax payment, but they all charge fees that can negate the value of any miles earned. In general, these fees make the cost of getting miles slightly cheaper than buying miles directly from the airlines, but still not a real bargain. Where this can make sense is:

1) When you can write off the cost of the processing fees as a business expense (I am not a tax professional, so please consult one before doing this)
2) You need to hit a spend threshold on your credit card and the additional benefits you receive outweigh the cost of making the charge. For example: attaining Hilton Diamond status after $40,000 spend on Hilton Surpass Amex or spending on an AA card to reach lifetime elite status or getting Delta MQMs and threshold mile bonuses after $30,000/$60,000 spend on the Delta Amex Reserve.
3) You have a cash back card, like the Schwab 2% (which, by the way is no longer open to new applications and you are barely coming out ahead) or the Travelocity Amex which gives a 4% return on spend to be used for travel.

Link to the official government list of approved tax payment vendors.

Payusatax.com1.9% for Mastercard and Discover card payments

Choice Pay: 1.9% fee when using Mastercard.

OfficialPayments.com: Generally 2.3% when using American Express, Mastercard, Discover or Visa. So a $1,000 tax bill will net you 1,000 miles and cost you $23.  2.1% when using an Amex to pay a federal tax of $100,000 or more.

Pay1040.com 2.35% when using Mastercard or Discover.
You can also use your Amex Membership Rewards points to pay taxes, but they don’t list a rate, so I bet it would be at a very unfavorable ratio. I’d only recommend this if you are in a poor financial situation and have no other way to pay your taxes.

Can you earn miles from using the debit card option? Possibly, but some specifically prohibit earning miles from tax payments, like the US Airways and Alaska Airlines Bank of America debit cards. Most of the companies charge the same rate for a Visa debit card as a credit card. Payusatax allows Mastercard debit card payments for only a $3.98, but to my knowledge there aren’t any debit Mastercards that will allow lucrative mileage accrual. I initially thought I’d use my Chase Continental Mastercard debit cards, but I’ve heard those cards are not accepted/eligible for tax payments. Another wrench is that the IRS only takes two forms of payments, so your debit card may not have the spending limit to cover your tax burden in two payments.

Overall, paying your taxes with miles/points earning credit cards is generally expensive, but only you can decide whether it’s worth it based on the value you place on credit card spend and whether you can write off the transaction fees.

If anyone has any great ways to get miles for tax payments at a low cost, feel free to comment below!

Disclaimer: 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.

Previous post:

Next post:

  • mark

    I was surprised to read the Payusatax will take a Mastercard debit card for $3.98. American Airlines has a premium debit card that gives 1:1 as well as a premium Delta/Suntrust card that gives 1:1. I don’t know if tax payments are excluded.

    Bank of AMerica has an Asiana AMEX card that gives 2 miles for every dollar spent. I don’t know if it would be worth accumulating Asiana miles at about a 1.2 cents cost per mile by paying taxes.

  • adrian

    I used a balance transfer from the US Airways credit card to help pay mine. They offered 1 mile per dollar up to 10K with a maximum fee of $100 so that comes out to 1%.

  • tcf

    isnt it “illegal” for companies to tack on “processing fees” on cc xactions? i hate that the government bodies does this (e.g. dmv/dps)

  • mark J

    I ended up using a Fidelity AMex card to pay a substantial tax bill. Given two miles per dollar of spend transferable to Aeroplan I will have enough miles for one of their “mini around the world” trips in first class. I figure I will pay about $1400 for it plus whatever booking fees Aeroplan charges. Somehow it feels like it takes a little sting out of the tax bill :-)

  • Chris

    Note that, on the Schwab Card, you are coming out in the red as it’s a VISA…

    Cost via OfficialPayments.com: Generally 2.3% when using Visa.

  • TPGirlFriday

    Just wanted to let everyone know I received my beautiful Chase BA Visa in the mail today :)

  • John Smith

    How about using the Chase AARP Visa and getting 5% back (2.7% back after the convenience charge)? http://www.aarpcreditcard.com/Default?CELL=66J9

  • The Points Guy

    @TPGGirlFriday- congrats!

    @John- interesting idea, though I’d be worried Chase flags it as one of the ineligible categories. Per T&C You do not earn points on balance transfers, cash advances, cash-like charges such as travelers checks, foreign currency, and money orders, any checks that are used to access your account, overdraft advances, interest, unauthorized or fraudulent charges, or fees of any kind, including fees for products that protect or insure the balances of your account.

  • Jim

    TPG-I’m planning on applying for and getting the BA/Visa. The spend is $2500. If I read things correctly, I could pay my Estimated Taxes with the card. Yeah there’s a little fee, but it gets my 2,500 spent and nets me the 100,000 miles.

  • The Points Guy

    @Jim- correct- you’ll pay a 2.3% fee for the transaction, but you’ll get your 100k miles, which is still a good deal

  • A. S.

    A couple of years ago, one of the Chase United cards was offering double miles for paying taxes with the card. That was sweet… Has anyone seen any bonus offers specifically geared toward paying taxes this season?

  • http://www.jennstravelogueblog.blogspot.com Jenn

    Hi Brian, I just found your blog through the NYTimes Frugal Traveler blog. Great find! I hadn’t even considering paying my taxes with my credit card, fail for me as I owed a couple of thousand dollars and went old fashioned with a paper check. Oops. I’ll know for next time!

    ~Jenn

  • XX

    @Pointsguys. Do you know if you can wire money ahead of time if y0ur tax payment exceeds your CC limit? If so, do they accept any amount?

  • Wolf

    No. It is against the rules of the credit card merchant associations for a merchant to charge surcharges on their own merchandise. So if you go to Wal Mart and buy $50 worth of merchandise, they can’t tack on a $2 charge for paying with credit.

    This scenario is different. The merchant is NOT the government agency, but rather a private company who has a contract to collect payments on behalf of local, state, and federal agencies and some private utility companies. It’s perfectly reasonable to expect that these private companies should be allowed to charge a small fee for their services. In the case of the IRS for example, federal law prevents the IRS from paying these companies one red cent for processing a payment. So if they didn’t pass the charge on to you, the company would not make anything — and in fact would LOSE money since the credit card companies take a hit of every transaction (called the “discount rate”).

    It’s a free enterprise market… these companies provide a very valuable service by allowing even very small municipal governments to accept credit/debit card payments, an expense they would not be able to afford on their own. I hate paying the fee too, but the fee isn’t going to the DMV, IRS or whatever. It’s paying the middleman for providing a valuable convenience service so you can pay your taxes at four in the morning on a weekend with your Discover card. :-)

  • Jon

    It’s not paying the middleman very much. Most of the fee is going straight back to your credit card company, with the middleman keeping a very small cut.

  • Pingback: Fastest, Cheapest Ways to Meet Minimum Spend Requirements | Travel Credit Cards()

  • Pingback: Master FAQ Post on Chase British Airways 100,000 Mile Offer | The Points Guy()

  • Pingback: Reminder: British Airways Visa 100,000 Bonus Ends July 17 | The Points Guy()

  • Pingback: Why I Paid My Taxes With a Credit Card to Earn Points and Hotel Nights | The Points Guy()

  • Pingback: Maximize Monday: Making The Most Out of Your Taxes | The Points Guy()

  • Pingback: Maximize Monday: Making The Most Out of Your Taxes | Hack.Travel()

Print This Page