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Why I Paid My Taxes With a Credit Card to Earn Points and Hotel Nights

by on September 25, 2012 · 16 comments

in Chase, Citi, Credit Cards, Hilton, Points Guy Pointers, Taxes

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I always get asked if paying taxes with a credit card is a good way to rack up points. My answer is always: it depends on your situation since there are fees involved using credit cards, so the value proposition decreases drastically. However, depending on the size of your bill, it is a quick and easy way to meet minimum spend requirements and hit any bonus spend requirements as well. In general, I probably wouldn’t do it if I was only earning regular miles for the purchase, but I recently used PayUSATax.com which charges a 1.89% “convenience fee” for using a Mastercard, Visa or Discover and I felt good about it because I met a minimum spend requirement and hit a spend bonus all in one fell swoop. Note: if you want to purely rack up miles and avoid fees, using a debit card like the Delta Suntrust card is the most lucrative option – Daraius at Million Mile Secrets successfully used his card to earn a bunch of miles and only paid $3.49!

PayUSAtax.com Options

Minimum Spending Requirements

I recently applied for four new credit cards: the Starwood Amex Personal, Starwood Amex Business, Chase Ink Plus and the Citi Hilton Reserve and while the point payday was lucrative, I was collectively looking at spending $22,500 within 6 months. Coincidentally, I had a $10,000 tax bill to pay and while the best deal would be using my Suntrust Delta card, I decided to pay the $189 convenience fee and put the charge on my Hilton Reserve card, which accomplished the following:
- Instantly took care of the $2,500 minimum spend requirement which I needed to hit within 4 months, which got me two free weekend nights at any Hilton property in the world.
- Earned the anniversary free weekend night at any Hilton property for spending $10,000
- Earned 30,567 base HHonors points because the card gives 3 points per dollar spent.
- Achieved 1/4 of the $40,000 in spend needed to get Hilton Diamond status. I highly doubt I’m going to put $30,000 more spend to get Diamond, because I’m pretty happy with the Gold status this card automatically gives which entitles me to a 25% bonus on all base points, free internet, a dedicated reservations center, room upgrades, access to the executive club lounge and other welcome amenities.

So all together I got 3 weekend nights at top Hilton properties, one night in a category 4 hotel (30,000 points) and Gold status for a $95 annual fee + $189 in fees to pay my tax bill = $284. I was okay with that because I plan on redeeming my three free weekend nights at hotels that go for $400+ per night, which isn’t hard to do in cities like London.

Why Not Other Cards?

Initially I thought I’d put all $10,000 on the Ink Plus since that spend requirement was the most pressing at 50,000 points with $10,000 within 3 months, but I can normally spend that much with business expenses and I’d rather juice the card’s 5x spend category in office supplies/cell phone (I’m getting the iPhone 5) /internet/landline/TV and 2x in points per dollar on gas stations and hotels.

I have 6 months to meet the spends on my Starwood Amex cards and since I spend a lot at Starwood hotels and am now a 75 night Platinum member, I’ll earn a base of 6 Starpoints per dollar spent at Starwood hotels when using the cards.

Other Lucrative Spend Bonuses

Though I’ve already earned a “Travel Together” companion ticket on British Airways thanks to spending $30,000 within a calendar year on my British Airways Visa, if you got in on the card during the 100,000-Avios bonus bonanza, you’d need to spend $20,000 within a year to earn that full 100,000 bonus, and then you’d be within striking distance of the spending threshold for the “Travel Together” ticket.

As I mentioned in this week’s Top 10 Airline Credit Card Perks, several airline co-branded cards offer both elite-qualifying mileage bumps as well as redeemable bonus miles for meeting certain spending thresholds, so paying your taxes with some of these cards could be a good way to get closer to your next status level or earn both the usual amount of miles on the spending plus thousands in bonus miles.

The Delta Reserve card gives 10,000 MQMs with first purchase and another 15,000 MQM’s when you hit $30,000 in spend within a calendar year plus an additional 15,000 MQM’s at the $60,000 mark during the same calendar year. The Delta Platinum Amex offers 5,000 MQMs with first purchase and then 10,000 MQM’s for $25,000 in spending, and another 10,000 MQM’s for $50,000 in spending, for a total of 20,000 MQM’s.

The only American Airlines card that helps toward elite status is the Citi Executive AAdvantage Card which yields 10,000 elite qualifying miles after $40,000 in purchases each calendar year. The US Airways Mastercard offers 10,000 Preferred Qualifying Miles after cardmembers hit $25,000 in spending each year.

As always with the “is it worth it” questions in the points game, before deciding what to do, you need to take a long, hard look at your travel patterns and upcoming travel plans and then calculate your particular expenses and potential benefits to determine whether paying a 1.89% fee is worth it for your needs or not.

For me personally, I am putting my quarterly tax spending on cards where I need to meet a minimum-spend threshold in order to qualify for awards that vastly outweigh the 1.89% transaction fee.

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.

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  • Sam

    Don’t you mean 30,567 *BONUS* HHonors points? If you know a trick to earn base points with the Citi Hilton Reserve card, I’m all ears!

  • Dave

    I think the Ink bonus is only good for cell phone service. They did no want to give me points once because they thought I bought accessories. After I fought it they awarded me points but did not admit it was for services.

  • Laird Broadfield

    Do any of the grocery store purchasable cards count as “debit” cards?

  • thepointsguy

    Correct- I meant base as in the normal earning ratio on the card. I’m new to Hilton so didn’t realize that also meant elite qualifying!

  • thepointsguy

    Interesting- I generally have my entire Verizon bill 5x points regardless of what is on it- includin upgrades or new devices

  • Paul W

    Is the transaction fee for paying taxes a deductable expense if you itemize? I think it might be, and if that is the case, the true cost of the transaction is much less.

  • mangoMan

    I was going to ask the same question. I wonder if in general it is OK to deduct the fee, or if TPG has a special situation since he can somehow justify it as being related to his business?

  • thepointsguy

    Yes it should be deductible.. but ask a licensed tax advisor officially :-)

  • thepointsguy

    Generally no.. only pin based cards linked to checking accounts count as debit cards, though I’d love to hear if anyone has had a different experience

  • StockShooter: PVG-DXB

    If tax payment is a quarterly estimate,
    & if by next April one determines one
    overpaid, does service refund 1.89%
    of that overpayment? Even if not,
    are there situations in which one would
    purposely overpay taxes, knowing
    one can apply overpayment to next
    year’s taxes or request refund?

  • Tim

    Can we put quarterly “estimate” taxes on our credit cards?

    I know we can pay our annual tax amount….

    Thanks

  • thepointsguy

    Yes- thats what I paid

  • Atl475

    As a gold elite, you don’t get lounge access at Hilton unless you get upgraded to a room on the club level. So you may find yourself unable to enter the lounge when you redeem those free nights earned from your tax-payments

  • Laird Broadfield

    Unfortunately, the term “debit” is used so poorly, it’s hard to know what people mean by it.

    Debit is not the same as PIN-based; signature is not the same as credit, and since the Durbin amendment, signature debit can be cheaper for the merchant than PIN debit.

  • http://profile.yahoo.com/G4XJXYQQ67HG6NLIKZWNUOHSAU Ahmed

    Hi Brian, do you think if I buy 4 I phone 5′s at best buy next month on the Freedom card, will it count 5x points? If I can I will be more the half way done with the bonus on my freedom card. I don’t think i will travel this holiday this year, unless something comes up. What I came up with is 199.99*4=799.96 *6% sales tax= 847.95 total 847.95*4x points =3392 points. 1500-847.95= 652.05 to spend in 2.5 months on best buy, khol’s and travel.

  • Dhammer53

    $10,000 in taxes quarterly??

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