Will You Be Charged Cash Advance Fees for Paying Taxes With a Credit Card?

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Million Mile Secrets reader TIO comments:

If I use Citi 100,000 American Airlines credit card to pay for taxes on IRS payment web sites, do you think Citi will count that as a cash advance?  Thanks.

TIO is referring to the Citi AAdvantage Executive World Elite Mastercard, which has a sign-up bonus of 100,000 American Airlines miles after you spend $10,000 in the 1st 3 months.

Using Credit Cards to Pay Taxes

The IRS allows you to pay taxes with a credit card but ONLY through a 3rd party payment processor.  These companies charge 1.87% to 2.35% of your bill.

Will You Be Charged Cash Advance Fees For Paying Taxes With A Credit Card

You Can Pay Your Taxes by Credit Card, but It’s NOT Cheap

It usually does NOT make sense to pay taxes with a credit card, because the value of the miles and points is less than the cost of the transaction fee.

However, TIO is trying to reach the minimum spending requirement for the Citi Executive card, which will earn him 100,000 American Airlines miles if he spends $10,000 in the 1st 3 months.

If he puts $10,000 in tax payments on his card, he’ll pay a transaction fee of $10,000 x 1.87% = $187.  So depending how you use American Airlines miles, it is worth it to use the Citi Executive card to pay your taxes to get a 100,000 mile sign-up bonus!

100,000 American Airlines miles can get you a lot of Big Travel with Small Money, especially if you use them for First Class or Business Class award tickets.

For example, 90,000 American Airlines miles gets you a 1-way First Class ticket on Etihad Airways from North America to the Middle East or India.  If you paid cash for the ticket it would cost ~$13,000 to $14,000!

Will You Be Charged Cash Advance Fees For Paying Taxes With A Credit Card

Our Tickets on Etihad Would Have Cost ~$27,000 If We Hadn’t Used American Airlines Miles

So paying your taxes to meet minimum spending could be worth it, even with the fees.

It is also worth paying a fee if it helps you meet a spending bonus on a particular credit card or to get a perk.  See the Big Spender series for more information on what you can get with your credit card spending!

However, there are lots of other ways to meet minimum spending requirements that don’t cost money!

What About Cash Advance Fees?

I checked the IRS approved payment processors to see if the purchase would be coded as a cash advance:

Each have the same answer:

Your tax payment will be treated like a retail purchase and not a cash advance purchase.

Some folks on FlyerTalk have confirmed that they’ve been able to use Citi cards to pay taxes without being charged a cash advance fee.  And I’ve used Citi cards such as the Citi Hilton HHonors Reserve Card to pay taxes without being charged a cash advance fee.

So, TIO should be able to avoid paying a cash advance fee if he uses his Citi Executive card to pay his taxes.

Other readers have expressed concern that Citi will charge cash advance fees for gift cards and Vanilla Reloads.  In my experience, Citi will NOT charge you a cash advance fee unless you purchase a gift card or debit card directly from a bank.  This includes buying American Express gift cards from americanexpress.com.  

Will You Be Charged Cash Advance Fees For Paying Taxes With A Credit Card

No Cash Advance Fees When You Buy Gift Cards at Stores

Should YOU Consider Paying Taxes With a Credit Card?

I wouldn’t recommend paying taxes with a credit card, because the value of the points and miles is usually less than the transaction fee.

But it is worth it if 1 of these situations applies to you:

1.   You Have a Lot of Minimum Spending to Do in a Short Time

If you signed-up for several credit cards and are having trouble meeting minimum spending requirements (even after reading these suggestions), it might be worth paying taxes with a credit card.  Especially if the sign-up bonuses are large (like the Citi Executive card).

You’re better off paying the ~3% fee to get a large sign-up bonus!

2.   Earning Elite Qualifying Miles, Elite Status or Other Perks

Some credit cards offer elite qualifying miles or elite status after spending a specified amount each year.

For example, the Citi Hilton Reserve card offers free Hilton Diamond Elite status after spending $40,000 in 1 year.  Diamond Elites get room upgrades, lounge access, free internet, and other perks.

And the Citi Executive card earns 10,000 elite qualifying American Airlines miles after spending $40,000 in 1 year.  Elite status can get you upgrades to Business or First Class and other benefits.

If you’re looking for ways to earn elite status, paying your taxes with certain credit cards may be worth the fees.

Bottom Line

You can pay your federal taxes using a credit card, but you have to use a payment processor.  You’ll be charged a service fee between 1.87% and 2.35%.

All of the payment processors will code the tax payment as a retail purchase, NOT a cash advance.

TIO won’t be charged a cash advance fee if he uses his Citi Executive card, but he’ll have to decide for himself if it’s worth paying the service fee to meet his minimum spending on the card. 

If he’ll use his 100,000 American Airlines miles on award tickets that would normally cost hundreds & thousands of dollars, it is well worth it!

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13 responses to “Will You Be Charged Cash Advance Fees for Paying Taxes With a Credit Card?

  1. great article, VERY useful information

  2. Do you recommend instead buying Vanilla Reload cards and then mailing a Bluebird check to the IRS?

  3. If you intend to travel first class in the future, I can make a very good math argument that you should ALWAYS speculatively buy miles during decent sales, for paying taxes for EQM’s ( or EQP’s or whatever your airline calls them) or when American offers something like the 60x miles for magazines where you can get the miles at 1.67 cents and donate the magazine subscriptions for a tax deduction.
    10,000 EQM’s are always worth a lot more than 187.50 to me assuming I am going to get the top tier.
    I’d easily pay 1.875 cents–even much higher, for ALL the miles needed for status.
    I bought US Chairman for $3000 the past 2 years and it’s been a great value proposition. Just the 2 electronic upgrades to envoy would have cost $2300 under US Air’s GO Envoy last minute purchased upgrade program for one of the years.
    Add in about a 95% upgrade rate on domestic/Mexico flights and it’s too simple an equation. Top it off with double miles, award ticket deposit waiver , move up flight benefits and the “I can boot someone off an overbooked plane if I call 24 hours in advance” benefit and it’s too easy.

    If you would have flown first class anyway, it’s such an easy no-brainer to pay taxes wikth credit cards, and many of us have become so spoiled now–especially me–that I will only travel first.
    Occasionally there are outlier first class fares where this doesn’t hold true, but I can use 500,000 -1 million miles per year easily.
    As to Citi and gift cards, I just have to say , having had my ticket pulled by one bank, most of the time the T&C say you won’t earn miles on these even though you do. At some point Citi may become like Chase and decide your account isn’t worth having. I’m checking one year later and am still black-balled by one major bank. I would wager, however, that it’s when they are paying bonus category points on these cards it becomes a bottom line decision.

    Finally, back to the issue at hand in the question, I would make the argument you might be better off paying the 1.87 for all your taxes than even using a debit card to get them from Delta for nearly $0.

  4. I’m with Maury on this one. Set up a bluebird account with gift cards and pay your taxes that way. An extra few steps saves the fees.

  5. @mark–Don’t you have to write a check off Bluebird for this– can’t set it up as a biller payee?
    And that’s a great idea , I just need multiple friends I can trust to get all the taxes paid. I am afraid by the time the cc companies choked on all that Vanilla they might cry ,”foul.”
    I guess I am just skittish since it’s happened to me and I was doing anything close to what some of the people I read about . While I’d argue all of my charges were “legitimate” the vast majority in $ was not reloadables or gift cards.

  6. @traderprofit, I think Mark was echoing Maury, who did agree that a tax payment should be made with BB checks. Oh well to me that never actually owes. (serious, not sarcastic).

  7. Paying your taxes with a credit card is not a cash advance. The 1.87% fee is being charged by the IRS and/or the 3rd party processor, not the credit card issuing bank. Therefore, it counts as a regular charge, not a cash advance. This means that it is worth charging the tax payment as long as the rewards received is over 1.87%, which Daraius has explained elsewhere

  8. For what it’s worth, I recently paid my taxes on payusatax.com on a Citi card and it went through just fine as a retail purchase (not cash advance).

  9. Interesting subject. We made the minimum spend on my new Citi card via property taxes (have the miles) and plan on making the minimum spend on my husband’s card via quarterly taxes. I decided to pay the fee because of the opportunity cost of diverting our spend, particularly as we hit several category bonuses. Never thought of using taxes to get EQMs – will have to investigate further.

  10. If you’re paying business taxes, the fee may be deductible as a business expense. That reduces the out of pocket cost of the fee to less than the value of the points in many cases.

  11. I used my SPG last year and it was charged as a retail purchase. I know there are people out there who don’t think this is a good strategy, but I look at it this way; if I have to pay my federal taxes, using my checking account means that once the check clears, my money is gone with no benefit to me. Paying with a card, even if the fee was 2.35% means I would get something out of it.

  12. I have a large tax bill. The amount exceeds the credit limit on the card I want to use. Could i split the amount in half, make one payment, pay it off, and then make a second payment? Is there a limit to how many payments I can make?

  13. Don’t forget property taxes, in Idaho I was charged a small fee to use my CC
    6 months taxes on one card $700. and next 6 months taxes of $700 will go to a second airline card in May, helps build up my travel points/ miles.

    When I purchased a car for cash at the time 2006 they allowed me to CC $5000.
    now I would push for the entire purchase some how: any ideas?
    I received an insurance check to repair damage to my car, asked the payment be made out to me rather than the auto body shop, will deposit the check and CC the work.

    I enjoy reading here all the ways travelers work to earn point & miles, great ideas.

    As to fly style, I’m a coach and go twice person, yet I often get upgraded a business seat for free, as I fly in stylish business entire and am nice to the ticket agent, a smile is a good tool if it comes from the heart. 🙂