Credit Cards

How you can earn a tons of points paying your taxes with a credit card

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Should you Pay your taxes with a credit card?

Paying your taxes with a credit card is a pretty easy thing to do these days. In fact, the IRS has 3 official payment processors that are safe, secure, and are eager to charge you a fee to do it.

Yes, you WILL incur fees, but there are situations where the fees could be worth it. In fact, the only time it makes sense is when you earn more in points or cashback than the fees your paying, and therefore net tidy profit in the process. No…you’re not making a profit on the entirety of your tax bill, but you are earning something back by paying with a credit card vs paying cash, check, etc.

Let’s take a look at when it could be a good idea to pay your taxes with a credit card, but also when you should steer clear.

*Note I am not a tax professional and you should always consult one for advice. This is purely for educational purposes.

First – here’s a look at the 3 official payment processors: ACI, Pay1040, payUSAtax.

You’ll notice that you can pay your taxes with debit or credit. In fact, Paypal is even possible via PayUsaTax.com .

  • Debit Card fees
    • $2.14 to 1.87%
  • Credit Card fees
    • 1.82% to 1.98%
  • Digital Wallet Fees – varies

Pay taxes with credit card fees

You can see the fees broken down into a table so you know what you’re going to pay:
Pay taxes with credit card fees

Which Credit Cards should I use?

There are two instances that make sense

  1. The standard earn rate on the card outweighs the fees incurred
    • Currently the credit card fees sub 2%, so if you’re paying with a 2% cashback card, you’re ahead
    • The other instance is where the points you’re earning are worth more than 2 cents a point… the Capital One Venture Rewards or Venture X are great examples of this: you’re getting 2x on the purchase and I’d say the points are worth around 1.7 cents a piece. That’s 3.4% back!
  2. You’re hitting a minimum spend requirement
    • If you’re using a tax payment to hit a big bonus on a new credit card…you’re way ahead

The most popular reason to use a credit card is to hit a minimum spend requirement that unlocks a wave of bonus points. We have a favorite credit cards list that is updated monthly. I would suggest looking there to see how any of those could potentially fit in your travel goal strategy.

Additionally, there are a few other combinations and cards that can make sense even without a bonus which you can read about below. These, in my opinion, are few and far between.

How often can I use this service?

It really comes down to the type of tax payment you’re making, but the general rule of thumb is 6 times a year in each qualifying period. What does that mean?

Each of the 3 payment processors allow:

  • You can pay 2x per year on annual taxes,
  • You can pay 2x per quarter on estimated taxes.

This is pretty awesome since it creates a situation where you can split payment on a large bill to help you reach minimum spend requirements.

Check out this table on the IRS website that breaks it down into each tax form for exact answers.

An example: You have 1040-ES bill or a $10k quarterly tax bill 

You could make a total of 6 payments across the 3 payment processors each quarter.

So on a $10k tax bill, if you added 3 of the best cards to your wallet, you’d get $3375 to $4275 back in the form of points. Not bad on $200 of fees.

Hopefully this allows you to get creative on hitting sign up bonus thresholds 🙂

When you shouldn’t pay your taxes with a credit card.

I want to be very clear that I’m not recommending or advising you to pay your taxes with a credit card, but merely illustrating examples of how and when it could be advantageous to you. I want to stress that you shouldn’t pay your taxes with a credit card if:

  • You’re doing it because you don’t have the cash to pay the balance
    • You will incur massive amounts of interest from your credit card issuer in addition to the fee charged to process the payment. Find a good tax advisor and negotiate a schedule of payments.
  • You don’t intend on paying off the balance in full after charging it
    • Again…the finance charges will outweigh any benefit
      • There is an argument to be made for cards that offer 12 months interest free, but I’d personally avoid the situation.

Examples of when it makes sense to pay the payment processing fees

Again…just giving you examples of how this strategy could help you earn enough points to achieve your travel goals.

This isn’t an extensive list, and if you have ideas feel free to leave them in the comment section – this is intended to get the juices flowing.

Lucrative sign up bonuses

    • You’re going to pay your taxes anyways so the processing fee could buy you a stack of points
      • ex: Capital One Venture X
        • Spend $4k in 3 months to get a 75k bonus… or roughly 81k points for less than $80 in fees.

Cash Back in excess of the processing fee

    • Yes, if you can earn more than the processing fee in cash back, you can effectively turn paying your taxes into an arbitrage situation.
      • Example: You carry both a Chase Sapphire Reserve® and a Chase Freedom Unlimited® and have a $10k tax bill
        • You could charge $10k on the Chase Freedom Unlimited earning you 15,000 Ultimate Rewards for a $199 fee; however, you could combine those into your Chase Sapphire Reserve account and redeem them for $225 worth of travel in Chase Travel
    • The Citi Double Cash offers 2% back on all charges and the points could be combined with a Citi Thank You Premier for great travel partner redemptions
    • Capital One Venture X earns 2x on all purchases…

Earning Elite Status, elite nights, or free nights.

    • Several credit card have spend thresholds that give Elite Nights, Elite Miles, etc – here are a few examples where spend can help you reach Elite status
      • Credit Card spend earns Loyalty Points with American Airlines now…this could help push you over the top
      • Ritz Platinum status after $75k on Chase Ritz Card ( Get Marriott Plat and SPG Plat)
      • Hilton cards offer free nights after spending $15k in a year
      • Hyatt cards offer free nights after $15k spend, or 2 elite nights after $5k spend.
      • The Delta cards boost status based on spend

American Express Business Platinum purchases in excess of $5k

    • You get a 50% bonus on purchases over $5k when you use your American Express Business Platinum
    • When you use your Amex Points in Amex Travel on your selected airline, OR on premium airline tickets you get a 35% refund on your points – this equates to a 1.55 c redemption rates
      • $10k tax bill would cost you roughly $199 in fees but earn 15000 Amex Points. These points would be worth $232.50 in Amex Travel if you use them on your selected airline or premium cabin ticket.

American Express Blue Business Plus

  • This beauty gets 2x on all purchases up to $50k a year
    • I personally value Amex points around 2c so this is a nice arbitrage sitch as I would value it
    • If you carry an Amex Business Platinum you could redeem those points as mentioned above in Amex Travel for premium flights or with your preferred airline for 1.55c a piece, or 3.1c per dollar spent on taxes.

PayPal is a category bonus

    • We have seen periods of time where PayPal has triggered category bonuses on certain cards. Most recently, this was the Chase Freedom Flex(SM)  and it earned 5x points or 5% cashback on up to $1500 spend. This is a clear arbitrage situation PayUSATax allows PayPal payments

Capital One Venture X or Capital One Venture Rewards

  • Unlimited 2x points and has quickly become one of my go to cards on all non-category spend
  • If you value Capital One Miles at just a penny a piece, you’re still getting a return in excess of the credit card processing fee.

So should you pay your Taxes with a credit card?

One of the biggest questions I always get is in regards to hitting minimum spend requirements to get a wave of points. Personally, I think if this is a problem you’re navigating, paying your taxes with a credit is a surefire way to solve it for a fee. With that said, paying your taxes with a credit card isn’t something you should do just because you can earn points on it, and should only be done when the reward is greater than the cost.

Once you’ve paid you should get a receipt from the payment processor, but you can go here to verify the payment was received and documented by the IRS.

 

Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

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Chase Sapphire Preferred® Card


4.8
4.8/5
The Chase Sapphire Preferred® is a great starter card that earns Premium Ultimate Rewards that can be transferred into over a dozen partners many of which are US based including Hyatt, Southwest, United, IHG, and Marriott.

Welcome Offer

Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. 

Annual Fee

$95

Points Earned

Transferrable Chase Ultimate Rewards

  • Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.
    • That’s $750 when you redeem through Chase Travel℠
  • 5x on all travel purchased through Chase Travel℠
  • 3x on dining, including eligible delivery services for takeout & dining out
  • 3x on select streaming services
  • 3x on online grocery purchases
    • (excluding Target, Walmart and wholesale clubs)
  • $50 Annual Chase Travel Hotel Credit via Chase Travel℠
    • The begins immediately for new cardmembers and after your account anniversary for existing cardmembers
  • 2x on all other travel
  • 10% Anniversary Bonus
    • Every year you keep the card, your total spend will yield a 10% points bonus. If you spend $10k in a year, you’ll get 1k bonus points
  • Chase Sapphire Preferred continues to redeem at 1.25c in the Chase Travel℠ and the slew of other benefits remain in tact including Auto Rental Collision Damage Waiver ( primary ), purchase protections, etc.
  • Points are transferrable to 14 Ultimate Rewards partners
  • Redeem in Chase Travel℠ for 1.25 cents per point
  • No foreign transaction fees
  • Suite of Travel and Purchase Coverage
    • Auto Rental Collision Damage Waiver is my favorite
  • Get complimentary access to DashPass which unlocks $0 delivery fees and lower service fees for a minimum of one year when you activate by December 31, 2024
  • $95 Annual Fee

We keep an up to date spreadsheet that lists the best ever offers: You can find that spreadsheet here.

Historically 80k is a very, very good offer and hit in both 2022 and 2023. In 2021, we saw the offer hit an all time high of 100k. Who knows if that will ever come back.

Main Cast: 

Cards that earn flexible points and should be used on the bulk of your purchases.

Supporting Cast:

Cards that earn fixed points in the currency of the airline/hotel and can not be transferred at attractive rates. These cards yield benefits that make it worth keeping, but not necessarily worth putting a lot of your everyday spend on. 

The Chase Sapphire Preferred® is exceptional starter card and offers transferrable Ultimate Rewards, and pairs well with other Chase cards.

If you carry this card alongside Chase’s cashback cards like the Chase Freedom Flex®  and Chase Freedom Unlimited® or the business versions: Ink Business Cash® , Ink Business Unlimited® you can combine the points into Preferred account and transfer into hotel and airline partners

Annual fee is quite low at $95 a year + you get a 10% anniversary bonus on points + $50 hotel credit in Chase travel.

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved, or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

19 Comments

  • Michael W February 16, 2024

    The best way to earn points is via Chase Ink Cards. Earn up to 100,000 points by using my referral link below:

    https://www.referyourchasecard.com/21p/NJO6MED7RA

    Trying to save enough points for first trip. Thank you

  • patrick February 15, 2024

    Can someone PLEASE explain the jumping in the air pictures?

  • Miles April 15, 2021

    EQD is no longer available on the Barclay Aviator Silver, and only once (at $50k spend) on the Aviator Silver.

  • Hal April 15, 2021

    I’m getting 2.5% back on the citi double cash thru 4/30, so yes I’m paying about $100k in estimated taxes first quarter. Get a spread of about $540 in cashback or a higher value if I transfer to Citi Partners.

  • […] Paying Taxes With Your Credit Card:  It’s that time of year again where we start to gather our tax forms to prepare our tax returns.  Many of us will face a tax bill so then comes the question…. “Should we pay with our credit card?”.  Well, it depends…. […]

  • Gene January 22, 2021

    @ Miles — Forget 1.5x for AMEX Business Platinum. AMEX Blue Business is always 2x, plus through 6/30/2021 (if you are targeted), you get $25 back for each charge over $500 up to 10 times (up 20 times if your spouse also has this product)!

    • Miles January 22, 2021

      ahhhhhh totally slipped my mind!

  • Chris January 22, 2021

    This is such a well-reasoned article, so much better than the self-proclaimed “personal finance gurus” who try and sell hard-and-fast rules under the assumption that people are too dumb to do the math and calculate their costs and benefits.

    Thank you!

    • Miles January 22, 2021

      Chris – thanks so much! Yeah it completely depends on what the purpose is, and if you can end up ahead. Appreciate the feedback!

  • […] you pay your taxes with a credit card ( read this if you’re unaware of this option) this could be something to consider as you’re effectively making over 1% […]

  • […] there expenses that your business pays that it isn’t putting on a credit card ? Like taxes, rent, club dues, educational services, etc? These expenses could be a way for your business to hit […]

  • […] there expenses that your business pays that it isn’t putting on a credit card ? Like taxes, rent, club dues, educational services, etc? These expenses could be a way for your business to hit […]

  • […] there expenses that your business pays that it isn’t putting on a credit card ? Like taxes, rent, club dues, educational services, etc? These expenses could be a way for your business to hit […]

  • Sil April 10, 2018

    Quite informative. It seems as though a lot of the potential pros/cons to using a credit card for taxes could be applicable to (incrementally) paying off – likely privately funded vs. federal – student loans as well… so long as you then promptly pay off the credit balance in full after the charge.

    • Miles April 10, 2018

      Sil – absolutely. As long as you’re getting back more in points than you’re spending on the convenience fee, it’s a no brainer to me.

  • Earl Lee April 3, 2018

    Also, you forgot to mention that it can make sense if you’re getting a 1.5 X bonus with the American Express Platinum Business card when you need some points. I needed some extra points to book a flight and I got 1.5X the points on any amounts over $5,000 with the Biz Amex Platinum so I paid my taxes with them to get them.

    • Miles April 3, 2018

      Earl – could be a great use!

  • Jim F. April 3, 2018

    Hey Miles, no monkeying around…am I missing something or does the Chase Freedom present an opportunity to “earn” $135.00 worth of travel ($1,500 x 5 UR points/dollar = 7,500 UR points @ $,018/point) if one uses PayPal to pay $1,500 in taxes using a Chase Freedom card?

    • Miles April 3, 2018

      Jim – The IRS can’t pay processing fees, so the paypal processing fee, 1.97% for taxes, is passed on to you and added to the amount you owe. Roughly $30 on $1500, or $30 to buy 7500 points. Great deal IMO.
      In terms of %…the deal leaves you ahead by 3.03% – your valuation of 1.8 cents is pretty fair. If you have the reserve you’re getting guaranteed 1.5 cent redemptions with chase travel. It’s an arbitrage situation however you want to analyze it.

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