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Million Mile Secrets reader Doc Bennett commented:
I’m thinking of getting the Discover it® Miles 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.
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
With the Discover it Miles, Doc Bennett will earn 1.5 miles on all purchases. And while there’s no sign-up bonus, the miles you earn will be matched at the end of your first year.
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?
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.
What About 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.
- ~$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.
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)
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!
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!