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It’s tax time again! April 18, 2017, is the IRS filing deadline this year.
While it’s nice to get a refund, if you owe taxes, you can ease the pain of paying your tax bill by meeting the minimum spending requirements on a new credit card. Or hitting a spending threshold to unlock bonus miles, points, or elite status!
Just remember, you’ll usually pay a processing fee of ~2%, so do the math to see whether it’s worth it.
I’ll show you how to pay your taxes with a credit card. And help you decide if it makes sense for you!
Pay Taxes With a Credit Card
But the government does NOT accept credit card payments directly. You must use an approved 3rd-party payment processor or a bill payment service like Plastiq.
The 3rd-party payment processors will charge a fee of 1.87% to 2% of your bill when you use a credit card. And Plastiq charges a flat 2.5% fee for credit cards and a 1% fee for debit cards (unless they’re running a promotion).
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||1.98% (Minimum Fee $2.69)||$2.65|
|Pay 1040||Visa, MasterCard, American Express, Discover||1.87% (Minimum Fee $2.59)||$2.59|
|Official Payments||Visa, MasterCard, American Express, Discover||2% (Minimum Fee $2.50)||$2.25 ($3.95 for payments over $1,000)|
If you use one of the approved IRS payment processors and pay by debit card, you’ll be charged a flat fee of ~$3 to ~$4.
Choosing a Payment Processor
The main difference between the 3 payment processors and Plastiq is the fees they charge. Otherwise, there isn’t a huge advantage to using one over another.
For tax bills over $1,000, Pay 1040 charges the lowest processing fee for debit card payments ($2.59).
If you need to meet the minimum spending requirements to unlock a big sign-up bonus on a card (like the The Enhanced Business Platinum® Card from American Express OPEN or Chase British Airways Visa Signature Card), it could make sense to pay the fee.
As always, I suggest doing the math to see what makes sense for you.
For example, say you have a $5,000 tax bill.
Using 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)
So if the value of the miles, points, or cash back you’re earning is more than ~$94, it could make sense to pay your tax bill with a credit card.
You can use the Pay 1040 Fee Calculator to check your fees.
Just remember, not all debit (or gift) cards are accepted. In the past, some gift cards have worked, but I haven’t tried this year!
And 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, you should NOT pay taxes with a credit card 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.
Is It Worth It?
Here are a few examples where paying a fee to pay your tax bill could make sense.
1. Meet Minimum Spending Requirements
It might make sense to pay your taxes with a credit card if you have a large minimum spending requirement to meet on a card.
For example, you can earn 80,000 Chase Ultimate Rewards points after spending $5,000 on purchases within 3 months of opening a Chase Ink Business Preferred card.
80,000 Chase Ultimate Rewards points is worth at least $1,000 in travel booked through the Chase Travel portal.
Or, you could consider getting the The Enhanced Business Platinum® Card from American Express OPEN.
You’ll earn a total of 75,000 AMEX Membership Rewards points after meeting tiered minimum spending requirements. To get the full bonus, you’ll have to spend:
- $10,000 on purchases within the first 3 months of opening your account to earn 50,000 AMEX Membership Rewards points
- An additional $10,000 on purchases within the same timeframe, to earn an extra 25,000 AMEX Membership Rewards points
Here are a few ways to get Big Travel with the 50,000 AMEX Membership Rewards points you’ll earn from spending at least $10,000 on purchases within the first 3 months of opening your AMEX Business Platinum account:
- Effectively $1,000 when you pay for coach flights on your selected airline, or ANY First or Business Class flight, using the American Express Membership Rewards “Pay With Points” option
- 2 round-trip coach tickets within the US when you transfer American Express Membership Rewards points to Delta
- 1 round-trip Business Class ticket within the continental US and Canada when you transfer your American Express Membership Rewards points to Air Canada
2. Big Spending for Elite Status or Bonus Points
If paying your tax bill with a credit card will put you over the spending threshold to earn elite status, elite qualifying miles, or bonus points, it could be worth it to pay a fee.
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 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|
|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
You could earn a small profit by using a cash back card that pays more than 1.87% to pay your taxes.
If your tax bill is $5,000, for example, you’d pay ~$94 in fees ($5,000 X 1.87%). But you’d earn $102 cash back, for a profit of ~$8.
That’s not a lot of money, but it’s better than nothing!
Plus, spending with a card and paying your bills off on time helps build 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 It?
Using a card just to earn points doesn’t always make sense.
If you used your Chase Sapphire Preferred to pay your $5,000 tax bill (after earning the sign-up bonus), for example, you’d pay a total of $5,093.50 ($5,000 x 1.87% = $93.50). And earn 1 Chase Ultimate Rewards point per $1, or ~5,094 Chase Ultimate Rewards points.
You could convert those points to cash at a rate of 1 cent per point, so ~5,094 points is worth ~$51. But you would be losing money!
If you used those points to pay for travel through the Chase Ultimate Rewards travel portal, they’d be 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’ll likely do better by transferring the points to travel partners like Hyatt. For example, a night at a Category 1 Hyatt hotel costs 5,000 Hyatt points. Or if you needed to top off a certain account for an award.
But I wouldn’t do this unless I had a specific use in mind for the points!
Can You Split Payments Between Cards?
If you’re trying meet minimum spending requirements for more than one credit card, the IRS allows you to split your payment. The number of separate payments you can make with a credit card depends on what type of tax bill you’re paying.
For income taxes, you can make 2 separate payments per year. And if you’re paying estimated income taxes for the following year, you can make 2 payments per quarter!
If you’re using Plastiq, however, there’s no limit to the number of payments you can make. Because each payment will be sent to the IRS via a check.
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 one 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% in fees, depending on which IRS-approved payment processor you choose. Or use the bill payment service Plastiq, which charges 2.5% for credit card payments.
The cheapest option is Pay 1040, which charges a 1.87% fee.
That said, using a credit card to pay your taxes is usually NOT worth it. Unless you need to meet a card’s minimum spending requirements. Or you’re close to meeting a bonus spending requirement to earn extra miles, points, or perks on certain cards.
You can make 2 separate income tax payments per year to the IRS with a credit card. So depending on your travel goals, you could get a lot of Big Travel with Small Money from the points you earn on 2 different cards!