Pay Your Taxes With These 2 Credit Cards to Earn a Profit!

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Million Mile Secrets reader Doc Bennett commented:

I’m thinking of getting the Discover it Miles card to pay my yearly and quarterly taxes.

PayUSAtax charges 1.87% for credit card payments.  Since you essentially get 3% back after 12 months, I’d be making 1.13% back.  My quarterly taxes per year are around $60,000.  So I’ll basically make close to $700 net for little effort.

I thought about doing using the Barclaycard Arrival Plus but the math favored Discover it Miles.

Pay Your Taxes With These 2 Credit Cards To Earn A Profit

It’s Tax Time! Paying With the Right Credit Card Could Save You Some Money on the Final Bill!

Doc Bennett is correct!  You’ll earn more cash back with Discover it Miles card when paying $60,000 in income taxes.  But what if your tax bill is much less than that?  I’ll explain!

What’s the Discover it Miles Card?

Link:   Discover it Miles Card

Link:   My Review of the Discover it Miles Card

With the Discover it Miles card, Doc Bennett will earn 1.5 miles on all purchases.  And while there’s lim sign-up bonus, the miles you earn will be doubled at the end of your 1st year.  So for the 1st year this is effectively a 3% back card!

Other perks include:

  • No annual fee & unlimited 1.5X Miles on every dollar you spend on purchases
  • Up to $30 credit per card anniversary year for in-flight Wi-Fi purchases made with your card
  • Access to free FICO credit score online
  • NO foreign transaction fees

Should You Use Discover it Miles to Pay Taxes?

 Link:  When You Should Pay Your Taxes With a Credit Card!

Doc Bennett can NOT pay the IRS directly with a credit card.  But there are services that will allow you to use your credit card for a fee.

PayUSAtax charges a 1.87% fee for using a credit card.  So if you pay a $60,000 bill using this service you’d get:

  • $1,122 in fees ($60,000 for taxes x 1.87% fee)
  • ~$1,834 back ($61,122 for taxes & fees x 3% back)

For a total of ~$712 in profit (~$1,834 back – $1,122 in fees) just for paying taxes with the Discover it Miles card.

Pay Your Taxes With These 2 Credit Cards To Earn A Profit

Create Your Own Tax Refund With the Discover it Miles Card!

What About the Barclaycard Arrival Plus™ World Elite MasterCard®?

Link:   Barclaycard Arrival Plus™ World Elite MasterCard®

Link:   My Review of the Barclaycard Arrival Plus™ World Elite MasterCard®

Doc Bennett can earn 2.1% back (when redeemed for travel) with the Barclaycard Arrival Plus card.  If you use this card to pay the $60,000 in taxes, you’d get:

  • $1,122 in fees ($60,000 for taxes X 1.87% fee)
  • ~$1,284 back for travel expenses ($61,122 for taxes & fees X 2.1% back)

So you’d end up with ~$162  (~$1,284 back – $1,122 in fees) to redeem for travel expenses.  That’s much less than the $712 you’d get with the Discover it Miles card.

If you just signed-up for the Barclaycard Arrival Plus card, you’d also earn the ~$420 (when redeemed for travel) sign-up bonus for meeting the minimum spending.  This would give you:

  • ~$162 back on taxes + $420 sign-up bonus = ~$582 back

So you’d still do better with the Discover it Miles card, which will give you $712 back.

Don’t Have a $60,000 Tax Bill?

Many folks don’t owe quite that much to Uncle Sam.  And for a lower bill, you’ll likely do better with the Barclaycard Arrival Plus card.

Pay Your Taxes With These 2 Credit Cards To Earn A Profit

Folks Who Owe Less, Might Earn More Cash Back With the Barclaycard Arrival Plus Card!

Let’s say you have to pay $10,000 in taxes.  You’ll pay $187 in service fees using PayUSAtax with your credit card.

With the Discover it Miles card you’ll earn:

  • ~$306 back ($10,187 for taxes & fees x 3% back)

And with the Barclaycard Arrival Plus you’ll get:

  • ~$214 back ($10,187 for taxes & fees X 2.1% back)

So with both cards you’ll come out ahead!  Plus, if you don’t already have the Barclaycard Arrival Plus card you’ll earn another ~$420 bonus for completing the minimum spending.

Using either of these cards to pay your taxes is a good idea, even if you earn just a small profit.  That’s because using your card helps build a relationship with the bank.  And if they bank likes you as a customer, they’re more likely to approve your next card application!

Bottom Line

You can pay your taxes with a credit card by using services like PayUSAtax, for a 1.87% service fee.  But using cards that with a reward greater than the fee will give you a profit!

The Discover it Miles card gets you effectively 3% back for all your spending in your 1st year.  And the Barclaycard Arrival Plus earns 2.2% back when you redeem for travel purchases.

Although, you could get more value by using cards that earn airline miles and hotel points, like the US Bank Club Carlson card.

Also keep in mind, it’s NOT worth it if you can’t pay your balance off in full.  You won’t get ahead paying interest on credit cards!

Both the Discover it Miles card and Barclaycard Arrival Plus are good options for paying your taxes.  That’s because after accounting for the 1.87% in service fees, you’ll still get money back!

And what’s better than earning cash back for doing something you have to do anyway?  Thanks for your question, Doc Bennett!

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Editorial Disclaimer: Neither the responses below nor the editorial content on this page are provided or commissioned by the bank advertisers, and have not been reviewed, approved or otherwise endorsed by the bank advertisers. Opinions expressed here are the author’s alone, not those of the bank advertisers. It is not the bank advertisers’ responsibility to ensure all posts and/or questions are answered.

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12 responses to “Pay Your Taxes With These 2 Credit Cards to Earn a Profit!

  1. So it sounds like you are saying that basically anytime there is a fee to use you credit card (Barclay in my case) as long as the fee is 2.2% or less it would make sense to do it. Correct?

  2. Yeah, initial spending bonuses aside, the Discover it Miles card in the 1st year is probably the ultimate winner at 3%.
    (Note that if you happen to live in Hawaii, California, Nevada, Oregon or Washington, you can get the Marukai Premium JCB card, which is also basically a 3% card that works on the Discover/JCB payment network.)

    If you can swing it, the next best option I’m aware of is the BankAmericard Travel Rewards Visa with Platinum Honors status, which earns 2.625% on all spending. (Or 2.25% with Platinum status or 1.875% with Gold status or 1.5% with no Preferred Rewards status.) You don’t need to be in the 1st year to get that 2.625% and there’s no annual fee for that card either.

    After that, the best option is probably the Barclaycard Arrival Plus at 2.2%.

  3. It is 1.87% only for certain types of credit cards. Visa has a higher fee of 2.29%.

  4. @Joshua, good point. Though it looks like the fees vary by payment processor as well. So, some payment processors only charge 1.87% for use of Visa. (e.g. Pay1040.com, BusinessTaxPayment.com)

    Full list is here: http://www.irs.gov/uac/Pay-Taxes-by-Credit-or-Debit-Card

  5. Do you know of any on line service that will let you pay your property taxes on line to take advantage of this cash back award?

  6. What is the fee for using Amex?

  7. How do you get a credit limit of 60k to charge a tax bill that high?

  8. The IRS page also says this at the bottom:

    Fees differ from those in the table above when you choose the integrated IRS e-file and e-pay option.
    When I click that link it takes me to: http://www.irs.gov/uac/Pay-by-debit-or-credit-card-when-you-e-file

    Those payment processors have higher fees of 2.35%+. If I efile, how do I know if I can use the processor with 1.87% fee or if I need to use the ones with 2.35%+?

  9. Are you saying charges to one of the tax payment services is coded as travel? Not sure how that happens, please explain.

  10. Disregard my previous comment.

  11. Does the discover it card have a cap. Need to pay 400k in taxes

  12. What about non us taxes? Is there a term that prevents getting points from paying non US government taxes? For example Hong Kong? What is the best card for this?