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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. Many Million Mile Secrets team members and readers have used paying taxes as a 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 your situation.
How to 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 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 (there are a couple of other processors but their fees are slightly higher).
Don’t worry. You will not be charged cash advance fees when you pay with a 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?
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 credit 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 profit from your tax payments.
For instance, if you have a business tax payment to make, the Capital One® Spark® Cash for Business earns 2% cash back on all purchases, so you’d actually make a slight profit of 0.13% on your payment (2% cash back – 1.87% payment processing fee). That’s not much, but it’s better than not earning anything.
Use This Card Combination to Earn a Profit Paying Taxes
Apply Here: Chase Sapphire Reserve
Read our review of the Chase Sapphire Reserve
If you have both the Chase Sapphire Reserve and Chase Freedom Unlimited cards, you can earn a profit paying your income taxes, even with a 1.87% fee.
With the Chase Freedom Unlimited card, you earn 1.5X Chase Ultimate Rewards points per $1 you spend on all purchases with NO limit.
Then, you can boost the value of the points earned from your Chase Freedom Unlimited by transferring them to your Sapphire Reserve account. Each point in your Sapphire Reserve account is worth 1.5 cents when you redeem them for travel through the Chase portal.
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.
Here’s the math on how you can earn a profit paying taxes when you have the Chase Sapphire Reserve and Chase Freedom Unlimited.
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 per $1)
- ~$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’ll get ~$115 worth of travel. That’s a ~$21 profit (~$115 points value – ~$94 tax payment fee).
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|
You might consider using other Chase Ultimate Rewards points earning credit cards (like the Chase Sapphire Preferred Card) to pay taxes if you have a very specific redemption in mind. By transferring your points to airline and hotel partners, you could get a value that far exceeds the fees you’ll pay.
For example, suppose you have 20,000 Chase Ultimate Rewards points in your account, and need another 10,000 points to transfer to Hyatt for a free night at a luxury category 7 Hyatt hotel like the Park Hyatt Paris – Vendome. Room rates there are sometimes over $1,000 per night in the high season.
If you have an upcoming $10,000 tax payment, it could make sense to pay the convenience fee to top off your account and make the award booking possible.
Meet the Minimum Spending on a New Travel Credit Card
Check out our list of the best travel credit cards
If you know you’ve got a substantial tax payment coming up, you might consider applying for a new rewards credit card. You might be able to meet the minimum spending requirement in one shot and quickly earn a valuable welcome bonus.
Here are a few of our favorite current 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||60,000 Chase Ultimate Rewards points (worth $600 in cash back or $750 in travel) after you spend $4,000 on purchases in the first 3 months from account opening|
|The Business Platinum® Card from American Express||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. Terms Apply.
|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|
|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
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 small 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 unlock a lucrative welcome bonus on a new credit card.
Have you paid taxes with a credit card? Which one did you use and why?