What’s the best credit card to pay taxes?

Mar 26, 2020

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Reader Questions are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.

Despite a one-time extension to the filing deadline to accommodate coronavirus-related complications, tax season is right around the corner. For some people, this means a sizable refund while others will realize that they owe the government a good sum of money. TPG reader Jason wants to know which card he should use to pay his taxes …

I owe over $20k in federal income tax and I’m trying to see if it makes sense to pay with a credit card, even after the processing fee. I have a United MileagePlus Visa and Hilton Amex Aspire — which card should I use?

TPG READER JASON

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This is a great question Jason. While a big tax payment can be a great way to rack up bonus miles, you’ll want to make sure you’re earning enough to offset the processing fee. There are a number of different IRS approved payment websites you can use, but if you plan to pay with your credit card you’ll want to use pay1040.com which charges the lowest credit card processing fee at 1.87%. The site isn’t especially high tech but I’ve been using it to make quarterly estimated tax payments for over three years now and have never run into any problems.

Related: Paying taxes with your credit card

When trying to decide which credit card to use, it’s important to note that there aren’t any bonus categories that cover tax payments. This means you’ll want to pick a card with a high return on everyday spending, like The Blue Business® Plus Credit Card from American Express or the Chase Freedom Unlimited®. The Blue Business Plus card earns 2x Membership Rewards points per dollar on your first $50,000 spent each year (1x after that), and the Chase Freedom Unlimited earns a fixed 1.5% cash back (1.5x Chase Ultimate Rewards points) on all purchases. Based on TPG’s valuations, that works out to a 4% and 3% return respectively, meaning you still come out ahead even after paying the 1.87% processing fee.

The information for the Chase Freedom has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

Another option might be to use The Business Platinum Card® from American Express, which offers a 50% bonus on purchases over $5,000 (up to 1 million additional points per calendar year). The card would normally earn 1x American Express Membership Rewards points per dollar when paying your taxes, but this bonus brings your earn rate up to 1.5x (a 3% return based on TPG’s valuations). Just note that pay1040 charges you separately for your tax payment and the processing fee, so you’d want to make sure you were actually making a $5,000 tax payment in order to get your bonus points.

Of the two cards that Jason mentioned, I would recommend he pay with his Hilton Honors American Express Aspire Card. Aspire cardholders get one free weekend night certificate each year, plus they can earn a second one by spending $60,000 on the card in a calendar year. Jason could knock out a third of that requirement with just one purchase and have the rest of the year to meet that requirement.

Related: Credit cards with bonuses for meeting annual spending requirements

Bottom line

While taxes represent a pretty large expense for many individuals, there aren’t many tricks to earn extra bonus points. You can use this expense to meet the welcome bonus on a new card or to earn a bonus for meeting an annual spending requirement, but short of that you’re best off sticking with a card that offers a good return on everyday spending.

Thanks for the question, Jason, and if you’re a TPG reader who’d like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.

Featured photo by Isabelle Raphael/The Points Guy.

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