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

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

Million Mile SecretsWill You Be Charged Cash Advance Fees for Paying Taxes With a Credit Card?Million Mile Secrets Team

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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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Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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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. 🙂

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?

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.

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.

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.

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