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Update: Some offers mentioned below are no longer available. View the current offers here – The Business Platinum Card from American Express OPEN
TPG did a full guide to paying your taxes with credit cards back in April. Since then, there have been a few changes to credit cards and some new promotions that make the topic worth another look. Particularly, the recent enhancements to The Business Platinum Card from American Express OPEN make paying your taxes with a credit card even more appealing.
Before we dive into the changes, a quick recap: Paying your taxes with your credit card can make sense if you need help meeting a credit card’s minimum spending requirement or spending threshold (i.e., a Travel Together Ticket when you spend $30,000 in a year on the British Airways Visa Signature Card). Or, if you need to float the tax payment for a bit, using a card with 0% intro APR can help you defer the payment for months.
Other than these cases, you’d need to pay your taxes with a credit card that offers a strong return on everyday spending in order to justify the fees that processing services charge for card payments:
- 1.87% for Pay1040.com
- 1.99% for PayUSAtax.com
- 2.25% for OfficialPayments.com
The top contenders for this are the Chase Freedom Unlimited (1.5x Ultimate Rewards points), the Amex EveryDay Preferred Card (1.5x Membership Rewards points if you have 30+ transactions in a month), Discover it Miles (1.5x miles, doubled in the first year) and the Starwood Preferred Guest Credit Card from American Express (1x points, equal to 2.7 cents of value per dollar spent). Finally, there are 2% cash-back cards that’ll earn you a minimal 0.13% return on the cheapest tax payment processor.
However, the Amex Business Platinum provides a new opportunity for those who need to pay at least $5,000 in taxes. As part of the recent enhancements, the card now earns you 1.5x Membership Rewards points on each transaction of at least $5,000.
Since the lowest cost for using an Amex card to pay taxes is 1.87% and you can earn 1.5x Membership Rewards points for purchases over $5,000, the effective cost of “buying” Membership Rewards points by paying your taxes with the Amex Business Platinum is just 1.25 cents per point.
You can redeem Membership Rewards points earned through the Amex Business Platinum for 2 cents apiece for qualifying airfare purchases. This means that you can pay 1.25 cents in processing fees and get 2 cents worth of qualifying airfare just by paying taxes with the card.
Paying your taxes through the Amex Business Platinum could also be an easy way of hitting the minimum spending requirements to earn the 100,000-point sign-up bonus. If you have a very large tax bill, you could pay $15,000 toward your taxes — which would incur at least $281 in fees — to earn 122,500 Membership Rewards points (100,000-point bonus + 15,000 x 1.5 points for purchases over $5,000).
However, under a very liberal reading of the terms and conditions, Amex might not count these charges toward the minimum spending requirement; “Qualifying purchases do NOT include…purchases of other cash equivalents.” While this shouldn’t be a problem, make sure that you don’t rely on this method alone for qualifying for the huge sign-up bonus.
So, let’s review the options for paying your taxes with a credit card:
|Card||Points per Dollar Spent||Value of Each Point||Value Per Dollar Spent – Transferable Points||Value per Dollar Spent – Booking Flights|
|Chase Freedom Unlimited||1.5||2.1 cents||3.15 cents (with UR card)||2.25 cents (with Chase Sapphire Reserve)|
|Amex Business Platinum||1.5 (for purchases of $5,000+)||1.9 cents||2.85 cents||3 cents|
|Amex EveryDay Preferred Credit Card||1.5 (with 30+ transactions per month)||1.9 cents||2.85 cents||3 cents (with Amex Business Platinum)|
|Discover it Miles||3 (for the first year)||1 cent||N/A||3 cents|
|Starwood Preferred Guest Credit Card from American Express||1||2.7 cents||2.7 cents||Up to 1.5 cents|
You might be wondering if these tax payments will code as a cash advance on your credit card. This worry can easily be put to rest, as each payment processor has confirmed in its online FAQs that this isn’t the case: See the links for Pay1040.com, PayUSAtax.com and OfficialPayments.com.
The IRS limits each payment processor to only two payments per period. Thankfully, though, each estimated tax quarter is considered a different period. As we are currently so late in the year, you’re only going to be able to make six separate payments for your 2016 tax return: two payments for the fourth quarter, two payments on the extension and two payments for any balance due with the tax return.
Make sure to consult your tax advisor about the implications of timing your tax payments. While you’re speaking with him or her, check to see if you’d benefit from deducting the payment processing fee. Each tax situation will be unique; this fee could be considered an ordinary tax deduction, or it might provide absolutely no tax benefit.
Paying your taxes with a credit card can provide plenty of benefit if you use the right one and pick the lowest-fee service. The Amex Business Platinum‘s 1.5x MR points for purchases over $5,000 makes this card an excellent new option, enabling you to effectively purchase Membership Rewards for just 1.25 cents each. These Membership Rewards are worth about 1.9 cents per point when transferred to partners or 2 cents per point for certain airfare purchases through Amex Travel.
What are your favorite ways to maximize tax payments?
With great transfer partners like United and Hyatt, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game.
- Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
- Named Best Credit Card for Flexible Travel Redemption - Kiplinger's Personal Finance, July 2016
- 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
- Earn 5,000 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening
- No foreign transaction fees
- 1:1 point transfer to leading airline and hotel loyalty programs
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel
- No blackout dates or travel restrictions - as long as there's a seat on the flight, you can book it through Chase Ultimate Rewards