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Update: Some offers mentioned below are no longer available. View the current offers here: Citi Double Cash Card
Paying taxes is never fun. Whether it’s submitting a payment with your personal federal 1040 tax return or sending money with a quarterly payment or an extension request, no one enjoys sending money to the IRS. Usually when it comes to paying federal taxes, most people just put a check in the mail for the amount they owe. But you can pay taxes and estimated payments via credit card, and by using the right credit card, you can actually get a few dollars back for your payment.
Making Tax Payments via Credit Card
The IRS won’t directly accept credit cards for tax payments, but it has authorized three third-party vendors to do so on its behalf.
These third-party vendors each charge a different fee for paying taxes with a credit card — the cheapest is Pay1040.com with a 1.87% fee. Now, we here at The Points Guy usually don’t recommend paying fees on credit card purchases, but it can sometimes make sense when the rewards you’re collecting are guaranteed to be worth more than the fee you’re paying.
If you’re collecting points or miles, you can estimate how much those rewards would be worth by using TPG’s monthly valuations. A glance at the most recent valuations shows there aren’t a ton of loyalty currencies worth at least 1.87 cents per point or mile, which means there are a limited number of credit cards that would be worth using to pay taxes and the fee. If you’re working on meeting a minimum spending requirement, then using that card to pay taxes could also be worth it since you’ll get a nice haul of sign-up bonus points at the end. But that’s assuming you can’t make the minimum spend through normal non-fee purchases in the first place, which would be preferable.
Taxes and Cash-Back Cards
When it comes to cards that offer cash back or statement credits, the calculation is much easier. If you have a credit card that earns at least 2% on all purchases, then paying the 1.87% fee is logical.
There aren’t many cash back cards that meet that threshold. Here’s how the main options compare:
|Citi Double Cash Card||2%||1.87%||0.13%|
|Fidelity Rewards Visa Signature Card||2%||1.87%||0.13%|
|Discover it with first-year cash-back match||2%||1.87%||0.13%|
|Bank of America Premium Rewards credit card with Platinum Tier Bonus||2.25%||1.87%||0.38%|
|Bank of America Premium Rewards credit card with Platinum Honors Tier Bonus||2.625%||1.87%||0.755%|
Both the Citi Double Cash Card and the Fidelity Rewards Visa Signature Card will get you 2% cash back, netting a return of 0.13% on your tax payment after the fee is included. A new Discover it Card that matches all cash back in the first year will also get 2%, but you’ll have to wait until the end of your first card year to get that extra cash back.
However, the clear winner above and beyond these 2% cash-back cards is the Bank of America Premium Rewards Credit Card. When you’ve qualified for the Platinum Honors bonus via the Bank of America Preferred Rewards banking program, you’ll get 2.625 points per dollar spent, which can be redeemed for a statement credit at a rate of 1 cent per point. That’s effectively a guaranteed return of 2.625% on your purchases, which in the case of tax payments, comes to a net return of 0.755%. And even if you’ve only qualified for the lower Platinum bonus, you’ll still get 2.25 points per dollar, good for a net return of 0.38% after the fee.
Those might not sound like huge amounts, but a lot of people make substantial tax payments, and even a small percentage in rewards can help. In particular, people who are self-employed or who earn a significant amount of income from real estate rentals or outside investments can often be on the hook for tens of thousands of dollars in estimated taxes. By using the Bank of America Premium Rewards card, you can earn as much as $75 in net rewards after fees for every $10,000 in tax payments you make. Of course, you’ll have to have significant funds in a Bank of America account and/or Merrill Edge or Merrill Lynch investment accounts to earn this much; the Platinum Honors tier requires $100,000 or more.
Finally, remember that you might also be eligible to deduct the fees you’re charged when paying taxes with a credit card if you itemize on Schedule A. It isn’t a huge amount and many won’t be able to take advantage of this extra deduction as it requires your miscellaneous deductions to be more than 2% of your adjusted gross income. But if you do qualify, it’s another extra bit of money back for doing one of the two things in life that are unavoidable.
Know before you go.
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This card from Bank of America gets really interesting if you have a BofA checking, savings or investment account. Depending on the value of your combined accounts you can potentially get as much as 3.5x points on travel/dining and 2.625x points on other purchases making it the richest consumer banking bonus out there.
- Receive 50,000 bonus points – a $500 value – after you make at least $3,000 in purchases in the first 90 days of account opening.
- Earn unlimited 2 points for every $1 spent on travel and dining purchases and unlimited 1.5 points per $1 spent on all other purchases
- If you're a Bank of America Preferred Rewards client, you can get a 25%-75% rewards bonus on every purchase.
- No limit to the points you can earn and your points don't expire
- Redeem for cash back as a statement credit, deposit into eligible Bank of America® accounts, credit to eligible Merrill Edge® and Merrill Lynch® accounts, or gift cards or purchases at the Bank of America Travel Center
- Get up to $200 in combined airline incidental and airport expedited screening statement credits + valuable travel insurance protections
- No Foreign Transaction Fees
- Low $95 annual fee