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It’s almost tax time again! April 18, 2016, is the IRS filing deadline this year.
While most of us hope for a refund, you can take the sting out of owing taxes by meeting the minimum spending requirements on your new credit cards. Or hit a spending threshold to unlock bonus miles, points, or elite status!
But because you’ll pay processing fees of 1.87% to ~2.25%, it’s generally NOT worth it except under specific circumstances.
I’ll show you how to pay your taxes with a credit card. And when it might make sense for you!
How to Pay Taxes With a Credit Card
The IRS allows you to pay taxes with a credit card, but you must use an approved 3rd-party payment processor. The government does NOT accept credit card payments directly.
These payment processors charge 1.87% to ~2.25% of your bill.
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|
If you pay by debit card, you’ll be charged a flat fee of ~$3 to ~$4.
Which Payment Processor Should You Choose?
There isn’t an advantage to using 1 processor over another, except for reduced fees.
For example, on a $5,000 tax payment at Pay 1040, 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)
You can check your fees with the Pay 1040 Fee Calculator.
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?
Let’s look at a few examples where paying the fee could make sense.
1. Meet Minimum Spending Requirements
Paying taxes with a credit card could make sense if you have a large minimum spending requirement to meet on a card.
For example, the Chase British Airways Visa Signature Card has an offer to earn a total of 100,000 British Airways Avios points after meeting the tiered spending requirements.
It’s a terrific opportunity to earn a huge number of British Airways Avios points! But to get the full bonus, you’ll have to spend:
- $3,000 on purchases in the 1st 3 months of opening your account (earn 50,000 British Airways Avios points)
- $10,000 (total) on purchases in the 1st 12 months of opening your account (earn an additional 25,000 British Airways Avios points)f
- $20,000 (total) on purchases in the 1st 12 months of opening your account (earn another25,000 British Airways Avios points)
If you owe $10,000 in taxes and pay them via Pay 1040, you’d pay $187 in fees. But you’d earn 75,000 British Airways Avios points!
That’s enough to fly 3 people round-trip from the West Coast to Hawaii in coach on American Airlines or Alaska Airlines. While it’s no fun to owe that amount to the government, at least you’d get to unwind in Hawaii with the points you’d earn!
That said, if you can meet credit card spending requirements for free, this isn’t the best deal. Because you’re basically 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.
Remember, there are lots of other (free or cheap) ways to meet minimum spending!
2. 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 a lot (tens of thousands of dollars) per year.
Here are some of my favorite cards with 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||$30,000 per calendar year||Travel Together Companion Ticket|
|Chase Hyatt||$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|
|Chase Southwest Premier||$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
3. 2% Cash Back Cards Could Be (Almost!) Worth It
If you use a cash back card that pays more than 1.87%, you could earn a small profit by using a credit card to pay taxes.
For example, the Citi Double Cash card pays 1% cash back when you make a purchase, and another 1% when you pay it off.
So if your taxes are $5,000, you’d pay ~$94 in fees. But you’d earn ~$102 cash back. So you’d come out ahead by ~$8.
While you won’t 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. And some banks (like Barclaycard) want to see you using their cards before they’ll issue you more credit!
When Is It NOT Worth Using a Credit Card to Earn Points When Paying Taxes?
It can make sense to pay taxes with a credit card when you:
- Need a fast and convenient way to meet a minimum spending requirement for a big sign-up bonus
- Want to meet a spending threshold to earn elite status, elite qualifying miles, or other big spender perks
- Can earn more cash back than the fees you’ll pay with certain cash back cards
But using a card just to earn points does not always make sense.
You could convert those points to cash at a rate of 1 cent per point, 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) flight outside of North America using British Airways Avios points on Air Berlin, British Airways, Finnair, or other partners (4,500 points)
- A night in an IHG PointBreaks hotel (5,000 points) – but by using the IHG trick this would cost ~$35, so this isn’t a good deal
- 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 can cost $200+).
But I wouldn’t do this unless I had a very specific use in mind for the points!
How Many Payments Can You Make?
Taxes are complex and there are lots of different forms to keep track of. But you can make 2 payments if your taxes are due yearly, quarterly, or monthly with an installment plan. Here’s a reference for the various types of payments.
Depending on how much you owe, you could meet the minimum spending requirements on 2 different cards!
Or, you could hit a spending bonus on 1 card. And meet the minimum spending on another. That way, you get 2 bonuses instead of one!
You can pay your IRS tax bill with a credit card. But it will cost you 1.87% to ~2.25% in fees, depending on which IRS-approved payment processor you choose. The cheapest option is Pay 1040, which charges a 1.87% fee.
This is usually NOT worth it, unless you want to quickly meet credit card minimum spending requirements. Or are close to meeting a bonus spending requirement to earn extra miles, points, or perks on certain cards.
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