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How (and why) to pay your taxes with a credit card in 2020

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How (and why) to pay your taxes with a credit card in 2020

Jasmin BaronHow (and why) to pay your taxes with a credit card in 2020Million Mile Secrets Team

Signing up for credit cards through partner links earns us a commission. Terms apply to the offers listed on this page. Here’s our full Advertising Policy.

It’s that time of year again. This tax season, you might be wondering if you can earn miles, points or cash back for paying taxes with one of the best travel credit cards. If you owe money, it’s a good time to consider a strategy for earning the most rewards for spending you’ll have to make anyway. Paying taxes is a great way to meet credit card minimum spending requirements or hit a spending threshold to earn elite status or other perks.

It’s not free to pay taxes with a credit card. At a minimum, you’ll pay a convenience charge of 1.87% through one of the IRS’s approved payment processors. But this can be worth it if it means unlocking a big welcome bonus or racking up points worth more than the fees you’ll pay.

Paying taxes with a credit card doesn’t always make sense. I’ll show you how to do it and whether or not it’s a good idea for you.

Can you pay taxes with a credit card

The IRS lets you pay taxes with a credit card, but you can’t pay them directly. Instead, you’ll have to go through a 3rd-party payment processor. The cheapest credit card processor is Pay 1040, which works for personal and business taxes. They charge a 1.87% fee and allow payments with Visa, Mastercard, American Express and Discover.

Don’t worry, you will not be charged cash advance fees when you pay with a rewards credit card. It’s even in the payment processor FAQs:

Will I be charged a cash advance fee?

No, your tax payment will be treated like a retail purchase and not a cash advance.

I’ve paid taxes using Pay1040 several times and have never been charged a cash advance fee. Each time, the process was easy and painless.

When should you pay taxes with a credit card for points?

If you can’t pay your balance in full and on time, paying taxes with a credit card usually does not make sense. You’ll pay interest that will negate any rewards you earn, on top of the payment processing fee.

However, it’s a good strategy in some situations. For example, if you:

  • Want a fast and convenient way to meet minimum spending requirements for a new card welcome bonus
  • Need to meet a spending threshold to earn elite status, elite qualifying miles or other big spender perks like free hotel nights
  • Can earn more cash back than the fees you’ll pay with certain cash back cards (or miles and points worth more than the fee)

But if you have certain cards or card combinations, you can actually earn travel rewards from your tax payments that can be worth double what you pay in fees.

Best credit cards for paying taxes

The best card for paying your taxes is usually any card you’re trying to meet the minimum spending requirement with. The extra fees you pay often pale in comparison to earning a bonus worth hundreds. But once you’ve meet your spending requirement, you’ll want to crunch the numbers before you pay your taxes with a card.

As rule of thumb, you’ll want to earn at least 2% back in rewards for it to make sense to pay the extra fees. That can easily be done with certain credit cards that earn cash back. The Citi® Double Cash Card earns 2% cash back (1% when you buy and 1% as you pay) on every purchase and the Capital One® Spark® Cash for Business is a great business credit card because it too earns 2% back everywhere.

But, with cash-back cards you’re earning a very modest .13% in profit. In order to really knock it out of the park you need to earn transferable rewards. When you have the ability to move points to airlines and hotels you can turn your tax payments into business-class flights or luxury hotel stays. Below I’ve highlighted the best options for each of the major flexible points programs.

Amex Membership Rewards

Earning Amex Membership Rewards points when you pay taxes is easy with The Blue Business® Plus Credit Card from American Express because it earns 2x Amex points on the first $50,000 in purchases you make each year, then 1x. We value Amex points at two cents each, so you’ll be getting 4% back in rewards and this card has no annual fee.

Capital One Rewards

The Capital One® Venture® Rewards Credit Card and Capital One® Spark® Miles for Business both earn a straight forward unlimited 2x miles on every purchase. You can redeem Capital One miles toward eligible travel purchases at a rate of one cent per point, but you can also transfer Capital One miles to airline and hotel partners.

The transfer ratio for Capital One miles is 2:1.5 or 2:1 depending on the partner, which means that not every transfer partner is a good deal. Read our complete guide to the Capital One transfer partners for more details.

Citi ThankYou

If you have the Citi Double Cash card and another card that earns Citi ThankYou points you can convert the cash back you earn into Citi ThankYou points at a rate of one cent to one point. In order to be able to transfer ThankYou points you need to have either the Citi Premier℠ Card or Citi Prestige® Card.

The information for the Capital One Venture, Capital One Spark Miles, Citi Premier, and Citi Prestige has been collected independently by Million Mile Secrets. The card details on this page have not been reviewed or provided by the card issuer.

Chase Ultimate Rewards

Most Chase credit cards will only earn 1x Chase Ultimate Rewards points when paying your taxes with those cards. However, you can earn 1.5% back if you pay with the Chase Freedom Unlimited® or Ink Business Unlimited℠ Credit Card. This can be a good option only if you have another Chase Ultimate Rewards card that enables transfers, like the Chase Sapphire Preferred®, Chase Sapphire Reserve® or Ink Business Preferred Credit Card, then you’ll be able to pool your points onto that card and transfer them to Chase’s travel partners.

The Freedom Unlimited or Ink Business Unlimited are particularly good options if you have the Chase Sapphire Reserve. The reason for this is because with the Sapphire Reserve your points are worth 1.5 cents each when you book through the Ultimate Rewards travel portal. So you’re earning 2.25% back with either version of the Unlimited card. The information for the Ink Business Preferred Credit Card, Ink Business Cash, Ink Business Unlimited, and the Chase Freedom Unlimited card has been collected independently by Million Mile Secrets. The card details on this page have not been reviewed or provided by the card issuer.

Bottom line

Don’t write a check to pay your taxes and earn nothing. Instead, consider paying your taxes with a rewards credit card to earn valuable miles, points or cash back. It’s not free – there’s a convenience fee when you pay your taxes through IRS-approved 3rd-party payment processors, like Pay 1040. It can be worth paying a fee if the rewards you earn get you more value, especially if you use the payment to meet the minimum spending and earn a welcome bonus on a new credit card.

With the right card or card combination, you can actually earn a profit paying taxes, for example, The Blue Business® Plus Credit Card from American Express or Citi® Double Cash Card are great no-annual-fee options.

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Featured photo by Africa Studio/Shutterstock.

The Blue Business® Plus Credit Card from American Express

The Blue Business® Plus Credit Card from American Express

  • Earn 2X Membership Rewards® points on everyday business purchases such as office supplies or client dinners. 2X applies to the first $50,000 in purchases per year, 1 point per dollar thereafter.
  • Enjoy the flexibility to put more purchases on the Card and earn rewards when you buy above your credit limit*.
  • You’ve got the power to use your Card beyond its credit limit* with Expanded Buying Power.
  • More buying power for your business means more opportunities to earn points. That’s everyday business with the Blue Business Plus Card.
  • *The amount you can spend above your credit limit is not unlimited. It adjusts with your use of the Card, your payment history, credit record, financial resources known to us, and other factors.
  • 0.0% intro APR on purchases for 12 months from the date of account opening, then a variable rate, 13.24% - 19.24%, based on your creditworthiness and other factors at account opening.
  • No Annual Fee
  • Terms Apply
  • See Rates & Fees
Terms Apply | Rates & Fees

More Info

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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I pay my quarterly estimated tax with multiple $500 Mastercard debit gift cards. Depending on how much have to pay, you can save a lot this way. Best way is to use a category bonus or online cashback portal to buy the gift card for free or at a about $20 profit (e.g. this quarters Discover grocery store 5% or Altitude Reserve digital wallet bonus). Then, pay your tax with an IRS approved site with a flat debit fee that works out to less than 1%.

Can you use unlimited debit cards or are you limited to 2 per 1040 form (like the limit on credit card charges)?

I think most (all?) payment providers allow 2 per quarter. IRS has no limit. So, if you used 3 different providers you could submit about $3,000 in payments per quarter based on $500 gift card value.

5% – about 1% gift card fee – about 1% debit fee = 3% profit! This is definitely the best way to pay tax! Thank you Nathan.

Author

Hi Nathan – That’s a good tip. Thanks for sharing.

The IRS only permits two payments/month with a credit card. I have substantial taxes due because of a capital gain on a home sale, and my credit limit doesn’t come close to what I need to pay. Any ideas on how to process six figures of taxes via a credit card as cost effectively as possible?

Plus, there is the lag time between charge, bill, and payment to rinse and repeat. Any thoughts on how to tighten up the timeline?

Is anyone else having issue processing via Plastiq?

I’m in the same position! Curious about the answer to this.

Is it two times per processor for 1040 payment? Does that mean you can pay 6 times per year?

Due to our business, we sometimes have a large estimated tax payment, or a paymensmt that may equal $10,000 or so. I have the Chase Ink business card that earns 5x points at office stores,so I’d purchase the cards there.
What would be my best strategy from which cards to purchase and how many, to who to make the payment(s) with. Sorry for my ignorance, I’m just confused! I’m a points hoarder and I want to earn the points, but not end up paying more in fees than what it’s worth.
Thank you for any step by step guidance anyone is able to provide!

How do you come up with 2.25% back when pooling Chase cards? If you earn 1.5% on the Freedom card and transfer points to the Sapphire Reserve card they’re still only worth 1.5% right?

Beware, while you quoted a 1.87% fee for Pay1040, you may pay much more if using popular tax software. For example, if using H&R Block Tax Software you pay a 2.49% fee with Pay1040. Surprise!

Last yr I got Delta Amex gold card and was told by them that only the filing fee, not the taxes owed would count toward my spend. Was this incorrect? Also, can a Chase card (ie.Southwest) be used to pay taxes and get credit toward the spend req. for sign-up bonus?

Did this last year with two cards to meet min. spend. Now that I have an Amex Business Platinum I’m wondering if taxes can trigger the 1.5 points per dollar for purchases over $5000?

Yes, it works. Verified.

Author

Hi J. Galt – I don’t see why it wouldn’t; it’s treated like any other purchase.

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