Why It's Worth Paying Taxes By Credit Card

US Bank Smartly VISA, 4% cash back.

Given the fees charged by the tax payment processors, the difference between 4% and the 2.62% back for the BofA Premium Rewards VISA is significant.

I’m using this method to meet the SUB for upgrading two AmEx Gold Biz to Platinum - 10k spend for 120,000MR. Spending +$5,000 each charge to get 1.5 points /$

While I have found that buying miles only makes some sense if there is a big bonus offer, if I have an immediate use for the miles, and the cash fare is not less than the mileage cost, paying taxes may be a good way to purchase miles. At the 1.75% rate, 100,000 miles costs $1750 and that is less than what United, Delta or American charges. But conditions would absolutely have to align to make sense to me without applying for different new cards.

The credit card spending thresholds are very helpful and useful.

If I pay 45k tax on a card that gives me 2 times per $, it would cost me 787.50 in fees. With 90000 points I can get a business class ticket on British worth at least 5500$. And yes they are available if you plan ahead.
the 4% cash back is 1800$.
I don't need the cash.
I would pay taxes by card any day and get a business class long haul ticket worth $5500 for $787.50.
The $1800 cash back would only buy me an economy ticket instead.
So it depends on what you value.

And the value gets even better if there is a 25% transfer bonus.

Is the payment information on this article current???

Yes.

The two Federal tax payment services now charge 1.75% and 1.85% for credit card payments.

In my case,

The processor for California tax payments charges 2.3%.

And my city's property tax processor charges 2.25%

Agreed. Cold, hard cash, is the ultimate transferrable points currency.

Except the 1800 is in cold hard cash, whereas the 90k points business class's ticket is probably for a date/destination that you would never have planned on going to otherwise.

Can you over pay your taxes and just get the money back as a refund?

What link are you using?

The following link still shows three processors with the cheapest being 1.82%.

https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card

1.75% would be nicer.

yeah, the IRS site still has the old numbers, but if you click through to the individual processor sites, you see the new numbers.

@ Alan -- Yeah, the IRS just hasn't updated the costs yet, but you'll see those costs reflected directly with the processors.

@ Never In Doubt -- I'm intrigued by the US Bank Smartly Visa, though for now am withholding judgment. I've seen lots of reports of very low credit lines, and of possible limits on the types of purchases that the issuer will allow. I can't help but wonder if a large tax payment on the card may trigger some issues. Just waiting on data points to see...

John Doe, cash might be your preference. And, that's okay . . . for YOU. But, how do you know what Norita's travel plans are? For myself, I'd absolutely use those points on EK, EY, and SG and my redemption rate will be 4-6 CPP. So, a 2X card yields 8 to 12 percent overall reward rate. On Norita's example of $45k in taxes, that's $3600 to $5400. And, I can acquire those points for $800? Sign me up.

In this & other contexts, some people overthink the situation. They say card X has a 2x earn rate, the new USB Smartly has a 4% earn rate, so they're buying points at 2 cpp (opportunity cost), & they're not so stupid as to buy points at 2 cpp. But, there's the concept of Return On Investment & it hinges on what the redemption is. If the target redemption is >4 cpp on EK, EY, or SG, the ROI is substantially better than cash. There's Smartly & there's Wisely.

PS - To be clear, it hinges on the redemption. If the target redemption is less than 2 cpp or those points can be purchased for less than 2 cpp, then go the Smartly route. In my EK/EY/SG example, those two scenarios would not be the case.

Absent a SUB, *domestic* airline co-branded cards will not turn a profit in most cases. However, if credit card spending counts to elite status (airlines or hotel) and $X of incremental spending will get you to the next tier or milestone benefit, one should factor that in. For example, if I am 5000 AA Loyalty Points away from a milestone benefit of 30k points. Paying $5000 in tax would earn about 7x. A similar example exists for Hyatt.

The short answer is yes. But, you must wait for the refund and there will be interest lost on that cash. The IRS has a substantial backlog and the incoming administration has mentioned cutting the IRS' budget. Proceed with caution.

US Bank has an itchy trigger finger on fraud. Bona fide purchases (not MS) often trigger card locks. To me, attractive high-earning features of certain cards -- like the Altitude Reserve and Smartly -- are lost leaders. And, significant bona fide spending being characterized as potentially fraudulent seems like a convenient excuse to shut down a high earner. I am wary about Smartly's ability to scale and don't see 4% lasting long.

Bingo

Currently I am only using Chase Ultimate Rewards and have been using my Chase Freedom Unlimited to pay taxes (1.5 points per dollar) so I am essentially paying .25% to buy points. I most often redeem United miles for overseas economy flights and I find that I come out ahead vice simply paying the lowest fare, but more importantly I have a ticket that it is totally refundable. As an example, last year, I booked tickets from Siam Reap to Laredo and Monterrey to Chennai for 45,000 miles each way. My home airport is typically Laredo which means I can only use American or United.
Of course, I also take advantage of SUBs on American and United cards.
Any thoughts on using another points ecosystem that might meet my needs as well? I have quite a few Lifemiles and Avios (BA and Iberia) but I find trying to get a decent redemption is quite difficult. The Laredo flights really make it difficult to get a partner reward.

@Ben, My initial credit line was just $20k, less than half of what my other recent cards have started with.

That makes it inconvenient for my taxes, but I’m going to see how quickly I can get a CLI and reduce the inconvenience.

Can someone else use your card to pay their taxes? Or do these services make the name on the card math the name of the taxpayer?

I haven't had a large tax bill in a while, but the lower fees make this worthwhile, especially because I can easily get over 3 CPP with a fairly flexible schedule. The only downside is the change from 6 payments to only 4 allowed per quarter.

Frequentmiler reported on January 3 "Pay1040 seems to increase fee to 2.89% for tax payments"

We paid estimated in late December at the 1.75% rate.

Please check it out Ben and update if needed.

I came here for this. It is indeed up to 2.89%. So really only acipayments is left.

Okay, so it looks like it is only Business cards and AMEX cards that are 2.89%. I had tried a business card first and got 2.89%. When I try with a consumer Visa, it was 1.75%. See https://frequentmiler.com/pay1040-seems-to-increase-fee-to-2-89-for-tax-payments/

"The IRS officially claims that you’re allowed to make two credit card payments per payment period. However, anecdotally speaking, the limit seems to be two credit card payments per payment processor per tax period. "

Can you clarify a couple of things, as I've not done this before...if you are planning to pay the full/total amount due (not quarterly estimated payments), how does the 2x payments per period per processor come into play? Is that just to split between two different cards b/c of credit limits on each? And if doing that, do the total payments submitted have to meet/be the total amount due, or can it be partial with the balance paid by check? So, for example, if my tax bill is $25,000 and my credit limit on all cards is say $10,000, can I make 2x payments with 2x cards for $10K each, then pay the reaming $5 by check or do I have to do 10-10-5 (with a 3rd card)? Unless there is a cap on the amount you can charge by the processor, I'd prefer to stick to just one company with the lower rate; the issue is individual credit limits on the desired cards I want to use (e.g. card #1, card #2, card #3). Thanks.

If I get the American Express Business Gold Card can I use the 4x points on the 2 highest qualifying category expenses each month to pay taxes?

Bilt doesnt qualify tax payments for Rent Day bonus and that is up to 1K points anyways. But does anyone know if this Tax spend qualifies for yearly status requirements? E.g. spending $20K on tax payment will get me just 20K points but count towards my $25K Bilt Gold Status Spend requirement

Using a Paypal Cash Back Mastercard, which earns 3% cash back, the fee on the 1040 site is 2.89%. It's not a business credit card so not sure why it is showing up as 2.89% fee.

If I made two credit card transactions per processor (four total) on April 14, can I do the same on June 14 for those quarterly estimates even though they’re technically in the same financial quarter?

Interesting take, as the list with happiest countries in the world if filled with high-tax countries.

Healthcare, good roads, safe guards when you can't work, safe guards when you are fired, good (cheap) schools, etc etc.

Yes, we all hope to end up in a low tax economic powerhouse nation like Guatemala, Bulgaria, or Moldova rather than a high tax economic basket case like Denmark or Japan.

Hmm...that's certainly...a take! I'm all for non-wasteful spending, efficient government, etc. but, would you recommend that a US taxpayer NOT pay their federal taxes and potentially earn lucrative points/SUBs or getting hounded by the IRS for unpaid taxes, penalties, etc.? Asking for a friend.

Reminder to let the trolls starve.

Being responsible with credit cards is just a general good idea. But if you have something like a 12+ month 0% introductory offer, than absolutely pay as much tax as you can with that card, put that amount in the money market account or a CD, and earn interest. You come out ahead even after taxes on that interest.

You do get a hit on your credit score if you use up most of the credit limit, and it will not recover until you finally pay off the balance (maybe even a bit later).

If you work for yourself, you have to pay quarterly; there aren't deductions from a paycheck.

A single person who is self-employed making $185k/year pays ~$23k in self employment taxes and ~$33k federal taxes for a total of $56k in federal taxes alone. None of this is done through payroll deductions and quarterly taxes are the only way to handle the tax bill… which is a fantastic way to earn some substantial points. Assuming, like Lucky said, you can redeem the points efficiently.

The full picture is to 1) have only enough federal taxes taken out of your pay that are above the amount you plan to spend on your card.
2) quarterly, address that shortfall with a payment from your chosen card as you attempt to hit its sweet spot - e.g., $15K.
3) "break even" because you've paid your required taxes in full but not in excess by the end of the fiscal year.

1. **Why** is your aim to "break even" (that is, have the exact amount you will end up owing deducted from your paycheck)? I mean, that makes sense if you pay with cash and intended to do so paycheck by paycheck, but it's not a requirement and, if you are financially sophisticated, you can earn a few percent of interest by managing the payments yourself rather than having them withheld.

2. Many of us don't **have** paychecks from which deductions can be taken, and **must** make quarterly payments to the IRS anyway, so "breaking even" isn't a thing for us.

3. Even if you "break even" and have the correct amount of tax deducted from your paycheck, there is (at least in low interest environments which we experienced up until a couple of years ago) a play to be made by **overpaying** your Q4 taxes in Q1 of the following year, as close as possible to tax refund time as possible. That way you're making an interest free loan to the government in exchange for increased credit card spend.

Maybe it's just your phrasing that's bad or you think everyone works with w-2 but every paycheck you get you're paying taxes. This is for people who don't work for someone who handles their own tax deductions, people with capital gains payments etc.