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It’s that time of year again! April 15, 2015, is the IRS tax filing deadline, and readers often ask if it’s worth paying taxes with a credit card to earn miles and points.
But because you’ll pay processing fees of up to 2.35%, it’s generally not worth it except under specific circumstances.
Here’s how to pay taxes with a credit card and when it might make sense for you.
How Does This Work?
The IRS allows you to pay taxes with a credit card but you must use a 3rd party payment processor. The government does NOT accept credit card payments directly.
These payment processors charge 1.87% to 2.35% of your bill. And some now charge more for certain types of credit cards (like Visa).
If you pay by debit card, you’ll be charged a flat fee of ~$3 to ~$4.
Here’s a list of approved IRS payment processors and their fees.
|Payment Processor||Cards Accepted||Credit Card Fee||Debit Card Fee|
|Pay USA Tax||Visa, MasterCard, American Express, Discover||1.99% (Minimum Fee $2.69)||$2.69|
|Official Payments||Visa, MasterCard, American Express, Discover||2.25% (Minimum Fee $2.50)||$2.50|
|Pay 1040||Visa, MasterCard, American Express, Discover||1.87% (Minimum Fee $2.59)||$2.59|
|Business Tax Payment||Visa, MasterCard, American Express, Discover||1.87% (Minimum fee $2.59)||$2.59|
There doesn’t seem to be an advantage to using 1 processor over another, except for reduced fees. The least expensive is Pay 1040, which charges 1.87% for credit card payments, and a flat fee of $2.59 for debit card payments.
For example, on a $5,000 tax payment, you’d pay:
- $5,093.50 with a credit card ($5,000 x 1.87% = $93.50)
- $5,002.59 with a debit card ($5,000 + $2.59 flat fee)
Note: Not all debit (or gift) cards are accepted. In the past, some gift cards have worked, but I haven’t tried this year!
Note: You will NOT be charged cash advance fees when you pay with a credit card. The FAQs for all payment processors say:
Your tax payment will be treated like a retail purchase and not a cash advance
That said, paying taxes with a credit card definitely does NOT make sense if you can’t pay your account off in full. If you carry a balance, the interest you’ll pay will negate the value of the miles and points you’d earn.
When Does It Make Sense to Pay Taxes With a Credit Card?
1. The Fees Generally Negate the Value of Miles and Points Earned
Let’s look at our previous example. Suppose you used a card like the Chase Sapphire Preferred to pay your $5,000 tax bill. You’d pay a total of $5,093.50 ($5,000 x 1.87% = $93.50) and earn 1 point per $1, or ~5,094 Chase Ultimate Rewards points.
You could convert those points to cash at a rate of 1 point = 1 cent, so ~5,094 points is worth ~$51. You won’t break even!
If you used those points to pay for travel through the Chase Ultimate Rewards travel portal, they’re worth 1.25 cents each. So you’d get ~$64 worth of travel (5,094 points x 1.25 cents per point) from the transaction. That’s still not a good deal.
You could potentially do better by transferring the points to travel partners like British Airways, IHG hotels, or Hyatt. For example, 5,000 Chase Ultimate Rewards points transferred to these partners could get you:
- A 1-way, short-haul (under 650 miles) coach domestic ticket using British Airways Avios points on American Airlines, US Airways, or Alaska Airlines (4,500 points)
- A night in an IHG PointBreaks hotel (5,000 points)
- A night in a category 1 Hyatt hotel (5,000 points)
Using our example of a $5,000 tax bill, it’s possible to get more than ~$94 in value from these redemptions (often last minute, short-haul flights on American Airlines can cost $200+).
But I wouldn’t do this unless I had a very specific use in mind for the points!
2. Meeting Minimum Spending Requirements
Paying taxes with a credit card could make sense if you have a substantial minimum spending requirement to meet on a card. That said, there are lots of other (free or cheap) ways to meet minimum spending!
For example, the Citi AAdvantage Platinum Select World Elite Mastercard has a sign-up bonus of 50,000 American Airlines miles after you spend $3,000 in purchases within the 1st 3 months of opening your account.
You could get the spending done in ONE transaction if you paid a $3,000 tax bill. With the 1.87% fee, you’d pay a total of ~$56 on top of the $3,000 bill.
Some might consider this a small price to pay for 50,000 quick American Airlines miles. That’s enough for a 1-way Business Class ticket to Europe, which could cost almost $8,000!
That said, if you can meet credit card spending requirements for free, this isn’t the best deal. In effect, you’re paying for the convenience of getting the minimum spending done fairly easily in 1 transaction.
I’d only use this method if I had a lot of minimum spending to meet in a short amount of time.
3. Big Spending for Elite Status or Bonus Points
It might make sense to pay your tax bill with a credit card if it will put you over the spending threshold to earn elite status, elite qualifying miles, or bonus points.
You can check out my Big Spender series for an overview of which cards offer perks for spending tens of thousands of dollars per year.
That series was written several years ago, so here’s a table with some of my favorite cards that currently have big spending bonuses.
|Card Name||Spending Requirement||Bonus||Notes|
|Gold Delta SkyMiles® Credit Card from American Express||$25,000 per calendar year||Medallion Qualifying Dollars (MQD) requirement waived to earn elite status|
|American Express Platinum Delta Skymiles||$25,000 per calendar year||Medallion Qualifying Dollars (MQD) requirement waived to earn elite status|
|American Express Delta Reserve||$25,000 per calendar year|
$30,000 per calendar year
$60,000 per calendar year
|Medallion Qualifying Dollars (MQD) requirement waived to earn elite status|
15,000 Medallion Qualifying Miles, 15,000 Bonus Miles
Another 15,000 Medallion Qualifying Miles, 15,000 Bonus Miles
|Hilton Honors Surpass Card from American Express||$40,000 per calendar year||Hilton Diamond status until end of next calendar year|
|Starwood Preferred Guest® Credit Card from American Express||$30,000 per calendar year||Starwood Gold status for 12 months|
|Bank of America Virgin Atlantic||$15,000 per card anniversary year|
$25,000 per card anniversary year
|7,500 Virgin Atlantic points|
7,500 Virgin Atlantic points
|Bank of America Virgin America Premium Signature||$10,000||5,000 Virgin America status points||Maximum 15,000 points per calendar year|
|Barclaycard Hawaiian Airlines||$10,000 per card anniversary year||5,000 Hawaiian Airlines miles|
|Chase British Airways Visa Signature Card||$30,000 per calendar year||Travel Together Companion Ticket|
|The Hyatt Credit Card||$20,000 per calendar year|
$40,000 per calendar year
|2 stay / 5 night credits toward Diamond status|
3 stay / 5 night credits toward Diamond status
|Marriott Rewards® Premier Credit Card||$3,000||1 elite credit||No limit to the number of elite credits you can earn|
|Southwest Rapid Rewards® Premier Credit Card||$10,000||1,500 Tier Qualifying Points||Maximum 15,000 Tier Qualifying Points per year|
|Chase Ritz Carlton Rewards||$10,000 per card anniversary year|
$75,000 per card anniversary year
|Maintain Gold Elite status after 1st year of having card|
Platinum Elite status through December 31 of following year
|Chase United MileagePlus® Explorer Card||$25,000 per calendar year||10,000 bonus United Airlines miles|
|Citi® / AAdvantage® Executive World Elite™ Mastercard®||$40,000 per calendar year||10,000 Elite Qualifying Miles (EQMs)|
|Citi® Hilton HHonors™ Reserve Card||$10,000 per card anniversary year|
$40,000 per calendar year
|1 free weekend night at almost any Hilton|
Hilton Diamond Elite status until end of next calendar year
4. Some Cash Back Cards Could Be (Barely!) Worth It
If you use a cash back card that pays more than 1.87%, you could break even or turn a (marginal!) profit by using a credit card to pay taxes.
Again, this is probably most useful if you need to meet a minimum spending requirement. Unless your tax bill is in the tens or hundreds of thousands of dollars, your net gain will be negligible.
For example, the Citi Double Cash Card pays 1% cash back when you make a purchase, and another 1% when you pay it off.
While you won’t usually make a lot of money using a cash back card to pay your taxes, it’s better than earning nothing by paying directly from your bank account.
And your card issuer will see lots of spending and on-time payment activity on your card, which builds your history with the bank. Banks like Barclays like to see you using their cards before they issue you more credit!
You can pay your IRS tax bill with a credit card, but it will cost you 1.87% to 2.35% in fees.
This is usually NOT worth it, unless you need to quickly meet a lot of credit card minimum spending requirements. Or are close to meeting a bonus spending requirement to earn extra miles, points, or perks on certain cards.
It’s definitely NOT worth it if you can’t pay your balance off in full. You won’t get ahead paying interest on credit cards!
Will you be paying your taxes with a credit card?
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