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Did you know you can earn miles, points, or cash back by paying your income taxes with a rewards credit card?
Folks who owe taxes might consider a strategy to earn rewards for a payment you’re already planning. Million Mile Secrets readers Cindy and Rick say they ALWAYS pay their taxes with a credit card.
The information for the Chase Freedom Unlimited® has been collected independently by Million Mile Secrets. The card details on this page have not been reviewed or provided by the card issuer.
Using a credit card to pay taxes doesn’t make sense for everyone. But if you have certain cards or card combinations, you can actually profit from your tax payments.
And if you recently took advantage of a top card offer, paying taxes with a card can be an easy way to meet minimum spending requirements. Or it might help you reach a spending threshold to unlock bonus miles, points, or elite status!
How to Pay Taxes by Credit Card
The IRS allows you to pay taxes with a credit card. But you must use a 3rd-party payment processor. You can NOT pay the government directly using a credit card.
There are 2 approved IRS payment processors that charge a 1.87% fee when paying with a Visa, MasterCard, American Express, or Discover credit card:
There are other approved processors, but you’ll pay higher fees, so I wouldn’t recommend them. Million Mile Secrets team members Keith and Jasmin use Pay 1040 and say it’s very easy to make a payment.
Note: You will NOT be charged cash advance fees when you pay with a credit card.
Even with the 1.87% convenience fee, it can make sense to pay taxes with a credit card if you:
- Need a fast and convenient way to meet a minimum spending requirement for a lucrative 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
And some folks don’t mind paying a small convenience fee to generate miles & points. It’s better than earning no rewards by making payments directly from your checking account!
But using a card just to earn points does not always make sense. For example, if you carry a credit card balance, the interest you’ll pay will negate the value of any credit card rewards you’d earn.
I’ll share examples of when it makes sense to pay taxes with a credit card.
Earn a Profit Paying Taxes With This Card Combination!
Link: Chase Sapphire Reserve
With the Chase Freedom Unlimited card, you earn 1.5X Chase Ultimate Rewards points per $1 you spend on all purchases with NO limit.
And you can get more value for your Chase Freedom Unlimited points by transferring them to your Sapphire Reserve account. Because each point in your Sapphire Reserve account is worth 1.5 cents when you redeem them for travel through the Chase portal.
Here’s how you can earn a profit with your tax payment.
For example, on a $5,000 tax payment, you’d pay:
- $5,093.50 with a credit card ($5,000 x 1.87% fee = $93.50)
If you pay with the Chase Freedom Unlimited, you’d earn:
- ~7,640 Chase Ultimate Rewards points ($5,093.50 x 1.5X Chase Ultimate Rewards points)
- ~$115 worth of travel (~7,640 points X 1.5 cents per point)
So you’ll pay ~$94 in fees for your tax payment. But you will get ~$115 worth of travel. That’s a ~$21 profit (~$115 value of points – ~$94 fee for tax payment)!
Here’s how you’d benefit using different tax payment amounts.
|Tax Payment Amount||Tax Payment with 1.87% Fee||Earn 1.5X Chase Ultimate Rewards Points With Freedom Unlimited||Redeem for Travel With Sapphire Reserve||Profit|
Folks with other Chase Ultimate Rewards points earning credit cards (like the Chase Sapphire Preferred® Card) might use a card to pay taxes too. Because you can transfer the points you earn directly to terrific airline and hotel partners and get incredible value.
For example, let’s say you currently have 20,000 Chase Ultimate Rewards points in your account. That’s 10,000 points shy of what you would need to transfer to Hyatt and book a free night at a top-tier Category 7 Hyatt hotel like the Park Hyatt Sydney. Room rates there are regularly $900+ per night!
So if you have an upcoming $10,000 tax payment, it might make sense to pay a small convenience fee to top off your account and make the award booking possible!
Meeting Minimum Spending on Top Card Offers or Unlock Valuable Spending Bonuses!
Link: Best Travel Credit Cards
Before making your tax payment, you might consider applying for a new card. This way, the tax payment can put a dent in the minimum spending requirement and get you closer to earning a valuable new cardmember sign-up bonus! Taking advantage of great card offers is the fastest way to get Big Travel with Small Money!
Here’s a look at my favorite offers:
|Card Name||Welcome Bonus|
|Ink Business Preferred℠ Credit Card||80,000 Chase Ultimate Rewards points (worth $800 in cash back or $1,000 in travel) after you spend $5,000 on purchases in the first 3 months from account opening|
|Chase Sapphire Preferred® Card||50,000 Chase Ultimate Rewards points (worth $500 in cash back or $625 in travel) after you spend $4,000 on purchases in the first 3 months from account opening|
|The Business Platinum® Card from American Express OPEN||Up to 75,000 AMEX Membership Rewards points
Earn 50,000 Membership Rewards points after you spend $10,000 on purchases and an extra 25,000 points after you spend an additional $10,000 on purchases in the first 3 months from account opening
|Southwest Rapid Rewards® Premier Business Credit Card||60,000 Southwest points after you spend $3,000 on purchases in the first 3 months from account opening|
|Southwest Rapid Rewards® Premier Credit Card|
Southwest Rapid Rewards® Plus Credit Card
|40,000 Southwest points after you spend $1,000 on purchases in the first 3 months from account opening
40,000 Southwest points after you spend $1,000 on purchases in the first 3 months from account opening
|Capital One® Venture® Rewards Credit Card||50,000 Capital One Venture miles (worth $500 in travel) after you spend $3,000 on purchases in the first 3 months from account opening|
|Capital One® Spark® Miles for Business|
Capital One® Spark® Cash for Business
|50,000 Capital One Spark miles (worth $500 in travel) after you spend $4,500 on purchases in the first 3 months from account opening
$500 cash back after you spend $4,500 on purchases in the first 3 months from account opening
And some of y’all might already have a card that offers bonus miles & points or other perks for spending a certain amount during the year. So paying taxes with one of the below popular rewards cards might make sense if it will get you closer to reaching the threshold.
|Card Name||Spending Requirement||Bonus|
|Starwood Preferred Guest® Credit Card from American Express||$30,000 per calendar year (January 1, 2019, the spend threshold will increase to $35,000)||Starwood Gold status for 12 months|
|Chase British Airways Visa Signature Card||$30,000 per calendar year||Travel Together Companion Ticket|
|Marriott Rewards® Premier Credit Card||$35,000 in purchases in a calendar year||Gold Elite Status|
|Southwest Rapid Rewards® Premier Credit Card||$10,000||1,500 Tier Qualifying Points for every $10,000 (up to a maximum of 15,000 points)|
|Citi® / AAdvantage® Executive World Elite™ Mastercard®||$40,000 per calendar year||10,000 Elite Qualifying Miles (EQMs)|
|Hilton Honors American Express Business Card||$15,000 per calendar year|
$60,000 total per calendar year
$40,000 in a calendar year
|A free weekend night
A 2nd free weekend night
Hilton Diamond status
Instead of paying taxes with a bank account and earning nothing, you might consider using a rewards credit card to earn valuable miles, points, or cash back!
You’ll pay a small convenience fee when paying through IRS approved 3rd-party payment processors, like Pay 1040. But it can be worth paying a fee if the rewards you earn get you more value.
For example, you can actually earn a profit paying taxes if you have the Chase Sapphire Reserve AND Chase Freedom Unlimited cards. Or you can take advantage of a new card offer and use the tax payment to meet minimum spending requirements and unlock a lucrative sign-up bonus!
Do you pay taxes with a credit card? If so, which card do you use and why?