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Does it Make Sense to Pay Taxes With a Credit Card?

by on March 5, 2012 · 26 comments

in Credit Cards, Taxes

As Tax Day begins to loom, a question I start getting a lot around this time of year is whether it’s worth it to pay your taxes using a points-earning card. Sure, you get the points, but many of the payment services you have to go through in order to do so charge fees that might offset the value of any points you earn. Here are my thoughts—and keep in mind, I am not a tax professional, so before you take any course of action speak to your tax professional and decide what is best for you.

When It Makes Sense
There are several sites that will process your tax payment, but they all charge fees that can negate the value of any points earned. In general, these fees make the cost of getting points/miles slightly cheaper than buying miles directly from the airlines, but that doesn’t make them a bargain.

However, here are a few situations where this might make sense is:

1) When you can write off the cost of the processing fees as a business expense.
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 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 PerkStreet 2% card, though depending on fees, you could be losing a bit of money on this. Update: PerkStreet Financial will be closing permanently and ceasing all business operations on September 26, 2013.

The Official List of Payment Services
Here is the official government list of approved tax payment vendors.

The IRS’s official list of approved payment services.

Payusatax.com: 1.89% for credit cards or $3.49 for debit cards. They accept Mastercard, Visa, Discover, BillMeLater, Star, NYCE, Pulse and Accel cards.

ValueTaxPayment.com: The fee is $3.49 for debit card payments, and 2.29% on credit cards. They accept Amex credit cards or Visa, Mastercard, Discover, Star, NYCE, Pulse and Accel debit cards.

OfficialPayments.com: Generally 2.35% when using American Express, Mastercard, Discover or Visa , or a $3.95 convenience fee per transaction with debit cards including Accel, NYCE, Pulse and Star. So a $1,000 tax bill will net you 1,000 miles and cost you $23.50 on your Visa, and just 2.1% when using an Amex to pay a federal tax of $100,000 or more. You can also use your Amex Membership Rewards to pay your taxes and convenience fee at the rate of 2,000 points per $10.

Pay1040.com: 2.35% when using credit cards including American Express, Discover, Mastercard and Visa. A $3.89 flat fee per transaction using NYCE, Pulse and Star debit cards.

OfficialPayments’ breakdown of using Membership Rewards to pay taxes and fees.

As in the case of OfficialPayments.com, you can use your Amex Membership Rewards points to pay taxes, but the rate is a pretty unfavorable ratio. I’d only recommend this if you are in a poor financial situation and have no other way to pay your taxes.

Debit Issues
Can you earn miles from using the debit card option? Not to my knowledge. They all prohibit earning miles from tax payments. For example the US US Airways Visa debit card states here  that “mileage credit will not be awarded for federal, state or local tax payments, or similar payments to federal, state and local government agencies,” so those cardholders are out of luck.

Another wrench is that to pay your taxes using a credit card or debit card, the IRS requires you to do so in two payments or less, so your debit card may not have the spending limit to cover your tax burden in two payments. Otherwise, you can file for a payment agreement where you pay a set amount each month until your taxes are paid off, but that incurs still more charges and interest.

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.

Share Your Thoughts!
If anyone has any great ways to get miles for tax payments at a low cost, or knows of cards that are offering spending bonuses for paying your taxes with them, please comment below.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author.s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.

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  • immiLawyer

    Are you sure the cost on the OfficialPayments U.S.$ 1k example payment wouldn’t be U.S.$ 23.50 per U.S.$ 1k?

  • Jwsky

    It is not a good idea to use the credit card because you do not have the cash. The IRS will work out a payment plan with a much, much lower interest rate than you will find most anywhere. You just need to file on time to avoid the penalties beyond regular interest. As always points and miles are a secondary reason for a financial decision.

  • Phil

    I will be paying my tax this year using my Chase AARP card. Getting flat 5% cashback on all spend until June so should actually get around 3%+ back after paying the fees. Also will be able to deduct the fee on this years taxes

  • Luda

    Yes – 2.35% of $1,000 is $23.50

  • dan

    what about using AMEX CC with OPEN benefits where you can buy VISA Giftcards at officesuppply store and then use the VISA GC as a credit card to pay the tax bills…i am considering trying to separate out my property taxes on my new mortgage and doing this….the city charges 2% convenience fee for paying taxes on their website, but i think the OPEN program nets 5% off when purchases made in store….i have to look more into details but this seems to make sense….anyone try this?

  • arcticbull

    With SPG points I’m willing to be a bit more flexible in how much I pay for them. Over 4 redemptions (6 nights) I’m averaging 6.02cpp so while not happy about it I’d be okay to pay 2.34cpp for them, tripling whatever I pay. Definitely not ideal, but something to consider I guess.

  • Jbhuth

    Yep, I’m planning on doing this to pay my taxes this year… We don’t owe too much so I would prefer to get some extra points…. Plus, I get an extra month to pay the tax bill this way.

  • Eric

    Yes, it’s $23.50–misplaced decimal point in the calculation! Fixed in the post now, thank you for pointing it out.

  • Larry

    I use this method to get EQM on my USAirways Mastercard. I used to use the card for regular spend to get to the $25k amount, but as other better cards have come out with various bonuses on certain spend categories, I find it doesn’t make much sense to use the card that much. So, I usually just put taxes on it. The fee is about $480 on payusatax.com, and for that fee, I get 25k RDM and 10k EQM. I figure that’s the equivalent of a good mileage run, and I don’t have to go anywhere, plus I also get the added benefit of 30 days of float on my taxes, which is worth a few bucks. I’ve also used this method to get to spend targets on super high spend cards, like the Amex Gold Business that recently had a 75k bonus for $10k in spend. I really couldn’t have afforded to get that card and meet the spend any other way without changing lots of my auto pay set ups and stuff, so paying $230 to meet the spend, and get 85k Amex, was worth it to me.

  • bluto

    Million Mile Secrets wrote a very encompassing post on this topic a couple months ago. It may help folks who are looking into this.

  • Andre LaPlume

    If you could pair it up with a zero % balance transfer it might make sense.

  • AceTracer

    I group all the reward travel blogs together in Google Reader, and the posts are usually indistinguishable except when I see Delta mentioned. That’s when I know for sure it’s TPG; no one else ever mentions them. :)

  • http://twitter.com/jesuisxtc xtc

    wouldn’t it make sense to use 2x miles per dollar card like venture to offset 1.89% fee from payUSAtax.com? wouldn’t be much (.11% difference) but on say a $400k tax bill might be worth it.

  • Chris

    I think this is really the best example of how this works – if you can hit high-spend thresholds for significant bonuses/EQM/MQM, etc that more than offset the fees (or you can deduct the fees if you have a business).

  • Tim

    Does anyone know f you can break up your IRS payment on multiple cards?

    Exam: $30k on Amex Premier Rewards (to get 15k annual spend) + $40k on Hilton Surpass (to get Diamond annual spend) + balance on Continental Presidential Platinum (to go toward Flex miles) ?

    Thanks

  • bluto

    yes, you can do 2 per period.

  • Tim

    By the way, is this ONLY for Fed or can we use these services for State taxes as well?

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  • Jhine

    Yesterday I posted this question on “Million Mile Secrets” and got not exactly a rude response, but a less than compassionate response considering I’m a newbe. So I’m going to re-post it here for hopefully a different point of view.

    Guys,
    Somebody please help me with the math here because I’m obviously missing something.

    When I book a Delta Business Class round trip ticket from my home to Paris (BOI to CDG) the price is $5562 or 200K points which works out to 2.78 cents per point. ( Last year I got the same seats for 100K points or 5.56 cents per point.)
    If I can use my AMEX for 2.29 cents per point to pay my taxes, why wouldn’t I want to do this ?

    Thanks in advance,

    John

  • thepointsguy

    Well I guess the question is: are you truly saving $5562 with those 200k miles? The difference between 2.29 and 2.78 isn’t that great, so you may be better off just buying a ticket and earning miles/ elite status.

    But to answer your question, if you truly get more than the cost of miles, then it can make a lot of sense to “buy” them via ways like paying taxes

  • Jhine

    TPG,
    OK, no problem, I can understand buying tickets outright if the resulting points could be had for less than the cost of the convenience fee for paying taxes. I currently own 5 AMEX cards (Gold Premier, Platinum, SPG, Delta Platinum and the clear Blue card) plus 2 Chase cards (the Sapphire and the BA). Which one should I use and how would I use it to to buy international business class tickets that would result in points for less than 2.29 cents per point?

    Thank you

    John

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