How (and When!) to Use a Credit Card to Pay Your Taxes

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How (and When!) to Use a Credit Card to Pay Your Taxes

Million Mile SecretsHow (and When!) to Use a Credit Card to Pay Your TaxesMillion Mile Secrets Team

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It’s tax time again!  April 17, 2018, 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.

How And When To Use A Credit Card To Pay Your Taxes
It Might Be Worth Paying Your Taxes With a Credit Card When You Unlock Elite Status Levels or Huge Sign-Up Bonuses to Get Big Travel With Small Money !

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

Link:   IRS-Approved Payment Processors

The IRS allows you to pay your tax bill with a credit card.  And I’ve written about how to pay income taxes with a credit card, and whether you’ll be charged a cash advance fee (you won’t!).

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 1.99% 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 ProcessorCards AcceptedCredit Card FeeDebit Card Fee
Pay USA Tax Visa, MasterCard, American Express, Discover1.97% (Minimum Fee $2.69)$2.58
Pay 1040Visa, MasterCard, American Express, Discover1.87% (Minimum Fee $2.59)$2.59
Official Payments Visa, MasterCard, American Express, Discover1.99% (Minimum Fee $2.50)$2 ($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 ~$2 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.

The least expensive for credit card payments is Pay 1040, which charges 1.87%.  And the cheapest option for debit card payments is a $2 fee through Official Payments, if your bill is under $1,000.

For tax bills over $1,000, PayUSAtax.com charges the lowest processing fee for debit card payments ($2.58).

How And When To Use A Credit Card To Pay Your Taxes
Do the Math to Make Sure Paying the Fee Is Right For You. And Be Sure to Pay Your Balance Off at the End of the Billing Cycle to Avoid Paying Interest!

If you need to meet the minimum spending requirements to unlock a big welcome bonus on a card (like The Business Platinum® Card from American Express OPEN or Chase Sapphire Preferred), 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 cards are accepted.

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 $1,000 in travel booked through the Chase Travel portal.  And potentially more if you transfer points to airline and hotel partners.

From the example above, you’d pay a ~$94 fee with Pay 1040 to use your Chase Ink Business Preferred to pay a $5,000 tax bill.  That’s definitely getting Big Travel with Small Money!

How And When To Use A Credit Card To Pay Your Taxes
The Ink Business Preferred 80,000 Chase Ultimate Rewards Point Sign-Up Bonus Is Enough for 3 Free Nights at the Andaz Maui at Wailea Resort! Or Transfer Points to Other Fantastic Chase Travel Partners for Big Travel!

Or, you could consider getting the The 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 time frame, to earn an extra 25,000 AMEX Membership Rewards points

That’s a lot of spending to earn the full bonus!  But depending on your travel goals, it might be worth it.

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:

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.

How And When To Use A Credit Card To Pay Your Taxes
Delta Will Waive Their Cash Requirement to Earn Elite Status If You Spend $25,000+ on a Delta Credit Card in a Calendar Year

Here are some of my favorite cards with big spending bonuses:

Card NameSpending RequirementBonusNotes
Gold Delta SkyMiles® Credit Card from American Express$25,000 per calendar year

$250,000 per calendar year
Medallion Qualifying Dollars (MQD) requirement waived to earn Platinum, Gold, or Silver elite status

Medallion Qualifying Dollars (MQD) requirement waived to earn Diamond elite status
American Express Platinum Delta Skymiles$25,000 per calendar year

$250,000 per calendar year
Medallion Qualifying Dollars (MQD) requirement waived to earn Platinum, Gold, or Silver elite status

Medallion Qualifying Dollars (MQD) requirement waived to earn Diamond elite status
American Express Delta Reserve$25,000 per calendar year

$30,000 per calendar year

$60,000 per calendar year

$250,000 per calendar year
Medallion Qualifying Dollars (MQD) requirement waived to earn Platinum, Gold, or Silver elite status

15,000 Medallion Qualifying Miles, 15,000 Bonus Miles

Another 15,000 Medallion Qualifying Miles, 15,000 Bonus Miles

Medallion Qualifying Dollars (MQD) requirement waived to earn Diamond elite status
Hilton Honors American Express Ascend Card$40,000 per calendar yearHilton Diamond status until end of next calendar year
Starwood Preferred Guest® Credit Card from American Express$30,000 per calendar yearStarwood 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
Barclaycard Hawaiian Airlines$10,000 per card anniversary year5,000 Hawaiian Airlines miles
Chase British Airways Visa Signature Card$30,000 per calendar yearTravel Together Companion Ticket
The Hyatt Credit Card$50,000 per calendar yearEarn Hyatt Explorist status through the end of the following year
Marriott Rewards® Premier Credit Card$3,0001 elite creditNo limit to the number of elite credits you can earn
Southwest Rapid Rewards® Premier Credit Card$10,0001,500 Tier Qualifying PointsMaximum 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
Citi® / AAdvantage® Executive World Elite™ Mastercard®$40,000 per calendar year10,000 Elite Qualifying Miles (EQMs)

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.

For example, the Citi Double Cash Card earns 1% cash back on your purchases and 1% cash back on your payments.

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!

How And When To Use A Credit Card To Pay Your Taxes
You’ll Only Earn a Few Bucks When You Use a 2% Cash Back Card to Pay Your Taxes. But It Can Help Build Your Relationship With the Bank. Plus, It All Adds Up!

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!

How And When To Use A Credit Card To Pay Your Taxes
You Can Make 2 Payments With 2 Different Credit Cards When Paying Your Income Taxes

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. 😉

Bottom Line

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!

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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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You can use Visa or Mastercard gift cards at the IRS approved payment processors and process them as debit cards to save on the fees. I’ve personally done this.

will vanilla vgc work as debit?

I’m not sure about Vanilla gift cards. Metabank Visa gift cards will work at PayUSAtax and Pay1040, but not at Officialpayments. Keep in mind that only 2 payments are allowed per processor.

You forgot that Payusatax.com allows PayPal, which earns 5% on Chase Freedom this quarter.

Million Mile Secrets

Thanks for this strategy!!