Most people probably don’t look forward to paying their taxes. For those of us in the miles & points world, though, one silver lining is the potential to generate credit card spending at an attractive rate.
Personally I pay all of my estimated quarterly and annual taxes by credit card, so in this post I’d like to take a closer look at why. Long story short, the credit card rewards that you can generate by using a credit card can more than offset the fee of doing so. Given that several cards earn 2x transferable points per dollar spent, this is often an opportunity to generate transferable points for under one cent each, well below what I value them at.
How much does it cost to pay taxes by credit card?
You can’t pay your federal taxes directly with the IRS by credit card, but rather there are two services that facilitate this. For the record, this is officially approved by the IRS, so this isn’t some shady operation. Here are the two options, along with their fees for credit card payments:
- Pay1040.com, with a 1.75% credit card fee (the fee is 2.89% for Amex personal cards and all business cards)
- ACI Payments, Inc., with a 1.85% credit card fee (the fee is 2.95% for business cards)
Fee structure | Pay1040 | ACI Payments |
|---|---|---|
Visa & Mastercard personal | 1.75% | 1.85% |
American Express personal | 2.89% | 1.85% |
Business credit cards | 2.89% | 2.95% |
Best tax payment use | Personal Visa/MC cards | Personal Amex cards |
While the exact types of cards accepted differ somewhat between the services, all of them accept American Express, Mastercard, and Visa payments.
Also note that the above fees are for paying federal income taxes, whether year-end or quarterly. If you’re paying state or local taxes (including property taxes), there may be opportunities to pay by credit card directly online. However, the fees will differ, and the above services can’t be used for that.
For what it’s worth, there used to be a third processor as well, which was PayUSAtax, but that company is no longer processing tax payments.
What are the logistics of paying taxes by credit card?
Of course everyone is in a different situation when it comes to how much they owe in taxes, and what their credit limits are on cards. Some people with big tax bills might be in a position where what they owe is significantly more than the credit limit on their card. So how does that work?
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. Since there are two services, you can potentially make four payments per payment period by credit card. If you pay quarterly taxes, this means you could potentially make well over a dozen payments per year by credit card.
Period | Estimated tax payment | Individual annual return |
|---|---|---|
Q1 | April 15 | — |
Q2 | June 15 | — |
Q3 | September 15 | — |
Q4 | January 15 (following year) | — |
Annual | — | April 15 |
At least that’s how I (and many others) have been doing it for years without issue. You always provide your social security number when making a payment, and the IRS lets you track payments received based on that. I’ve never had an issue with them not showing up correctly.
There could be a benefit to using a card with no preset spending limit, since these cards will often let you spend more than a traditional card. If your tax bill is more than the credit limit on one card, you can of course split the payment across multiple cards.
For that matter, if you pay long enough before the deadline, you could always max out your credit limit, pay off the balance, and then make another payment with the same card (though just be aware of the risks of credit card cycling).
It could also pay to be strategic about the timing of when your credit card statement closes. If you put a tax payment on a card right at the beginning of your billing cycle, you could easily have a whole month (or even more) to then pay that off, without paying any interest.
If you choose not to pay your taxes by credit card, you can make a direct payment from your bank account, or mail a check or money order, and the IRS won’t charge any extra fees for this. You can also pay by wire, but that often does incur a fee.
When is paying taxes by credit card worth it?
If you’re a savvy credit card user who pays taxes directly to the IRS, then paying your taxes by credit card should be a no-brainer. This is a great opportunity to generate credit card spending at the reasonable cost of just a 1.75% convenience fee.
Before I talk about the exact situations under which this makes sense, let me emphasize a couple of points:
- You shouldn’t pay taxes by credit card if you’re not actually good at maximizing credit card rewards, and if you’re not earning rewards that exceed the cost of the fees; you’ll want at least a calculated return of 2%, and ideally more
- You shouldn’t pay taxes by credit card if you can’t use credit cards responsibly, and are going to end up financing your tax payments using high credit card interest rates
With that in mind, under what circumstances does it make sense to pay your taxes by credit card, while paying a fee of 1.75-1.85%? In no particular order…
Credit cards with a great return on spending
The credit card landscape is incredibly competitive nowadays, and credit card rewards structures have improved considerably. If you’re using one of the best cards for everyday spending, you should easily be able to get value that exceeds the 1.75-1.85% fee.
For example, there are several cards that potentially earn up to 2x transferable points per dollar spent, including the following:
- Capital One Venture X Rewards Credit Card (learn more)
- Capital One Venture Rewards Credit Card (learn more)
- Citi Double Cash® Card (learn more)
- The Blue Business® Plus Credit Card from American Express (learn more)
- Capital One Venture X Business (learn more)
- Capital One Venture Business (learn more)
I value all these points currencies at 1.7 cents each, meaning that to me that’s the equivalent of a 3.4% return on spending. This is essentially a way to acquire transferable points for under a cent each, which I think most would agree represents a good value. I’d buy transferable points all day long at under one cent each if I could.
Let me also emphasize that above I’m including both personal and business cards that earn 2x transferable points. However, keep in mind that you should typically not use business cards for personal spending. However, I’m trying to be thorough in terms of the return on spending offered by various cards.
As you can see above, you can even come out marginally ahead by using a good cash back card, which earns a 2%+ return on spending. A 2% return on spending probably isn’t worth the hassle factor, but in some cases you can do even better than that.
In the interest of being thorough, let me also mention that while the Bilt Palladium Card (learn more) is incredibly lucrative and my go-to card for everyday spending (as it earns 2x points plus 4% back in the form of Bilt Cash), tax payments are explicitly listed as not being eligible for earning rewards. So don’t use this card for tax payments, and that applies to all three Bilt credit cards, so also the Bilt Blue Card (learn more) and Bilt Obsidian Card (learn more).
Meet credit card minimum spending requirements
There are some amazing credit card welcome bonuses out there, which generally require you to spend a certain amount within a defined period. Sometimes the spending requirements might be more than you’d otherwise ordinarily spend, especially if there’s a huge bonus with a significant spending requirement.
Paying taxes at a reasonable fee of 1.75-1.85% is a great way to generate credit card spending for these purposes.
Credit cards with spending or threshold bonuses
In addition to the cards with a generally lucrative return on everyday spending, there are also cards with specific threshold spending bonuses, which are particularly lucrative.
For example, the World of Hyatt Credit Card (learn more) has a $15,000 annual spending sweet spot, if you ask me. If you put a $15,000 payment on the card for a 1.75% fee (~$263), you’d earn 15,000 World of Hyatt points, a Category 1-4 free night award, and an incremental six World of Hyatt elite nights. That’s a pretty great value.
Similarly, the Hilton Honors American Express Surpass® Card (learn more) offers a free night award when you spend at least $15,000 on the card in a calendar year. So not only would you earn 45,000 Hilton Honors points for spending $15,000, but you’d also earn a free night award valid at a property costing up to 250,000 Hilton Honors points. That’s incredible.
Credit cards with airline & hotel elite status opportunities
There are more opportunities than ever before to earn airline and hotel loyalty program elite status through credit card spending.
For example, American AAdvantage status is based on earning Loyalty Points, so you can qualify for elite status through credit card spending. Spending $170,000 on the Citi® / AAdvantage® Executive World Legend Mastercard® (learn more) would earn you American’s top tier Executive Platinum status (you need 200,000 Loyalty Points, and the card offers an annual Loyalty Points bonus of up to 40,000 points — spending $165,000 would earn you 30,000 bonus Loyalty Points).
Now, is this worth earning exclusively through credit card spending? No, probably not. But at the margins it can be worth it, and at the rate of 1.75-1.85%, that’s pretty attractive pricing.
Perhaps the even more compelling opportunity involves Alaska Atmos Rewards elite status, given that credit cards can earn status points. In particular, the Atmos™ Rewards Summit Visa Infinite® Credit Card (learn more) earns one status point for every $2 spent. The thing is, your spending doesn’t just count toward status, but also toward other rewards, like earning Global Companion Awards. I think the math very much checks out here.
To give a hotel example, the IHG One Rewards Premier Credit Card (learn more) offers IHG One Rewards Diamond status if you spend $40,000 on the card in a calendar year. If you spent $40,000 on taxes with a 1.75% fee, you’d be paying an extra $700. For that you’d receive the following:
- 120,000 IHG One Rewards points (the card earns 3x points)
- A $100 statement credit and an additional 10,000 points (the card offers this when spending $20,000 per calendar year, plus making one additional purchase)
- IHG One Rewards Diamond status
I’d say that very much has the potential to be worthwhile as well.
Credit cards with low-interest opportunities
In general I advise against financing charges on your credit card, given how high interest rates can be. However, we do sometimes see promotional low or no interest rate opportunities on a credit card. If you’re in a cash crunch and being able to finance these charges for some amount of time would be helpful, this could give you some extra time.
Again, I’d avoid this if at all possible, but I do think it’s worth acknowledging. Just make sure you are able to make the full payment before the higher interest rates kick in, because that could quickly get very expensive.
Paying taxes with credit cards FAQs
Bottom line
I’ve been paying my taxes by credit card for many years, and find it to be an excellent value. Being able to generate credit card spending for a fee of under 2% is a no-brainer, in my opinion. It’s an easy opportunity to reach minimum spending, it’s a great way to acquire transferable points for under one cent each, and it’s also the easiest way to meet spending threshold bonuses or earn elite status.
Personally my default is using a card earning 2x transferable points, though I’ll also often use this opportunity to reach minimum spending requirements on cards.
Do you pay taxes by credit card, and if so, what’s your strategy for deciding which card to use?
I have some seriously complex spreadsheets re paying my tax on Amex. Here in Australia we can pay our irs via an intermediary company with a fee of 1.67%. With 2x earn on Amex platinum that’s equivalent to paying .8c USD per point. So very worthwhile.
I’ve found airline miles to be a hedge on our sliding aud when booking travel with air miles.
I’ve also found that I can make voluntary contributions...
I have some seriously complex spreadsheets re paying my tax on Amex. Here in Australia we can pay our irs via an intermediary company with a fee of 1.67%. With 2x earn on Amex platinum that’s equivalent to paying .8c USD per point. So very worthwhile.
I’ve found airline miles to be a hedge on our sliding aud when booking travel with air miles.
I’ve also found that I can make voluntary contributions to my 401k equivalent, which we can pay via the irs site. So that’s virtually unlimited air miles I could buy at .8c per mile as long as I’m happy to deposit to my 401k Happy days.
Also found that I can pay our property tax on Amex via our municipal service desk at the local library. If you use payWave with your Amex card it doesn’t charge any surcharge... Wow. That’s handy.
So plenty of ways down under to get value out of the Amex card and tax payments.
Disclosure: I was an accountant in a previous life…
I've received IRS refunds the past few years but in years prior when I owed money, I always used a credit card that gets me miles and MQD's. I do pay my county property taxes with a credit card. I pay my homeowners insurance bill and auto insurance bill with credit cards. Any big ticket items such as these are worthy of earning miles. And about those fees? As far as I'm concerned, that's just MORE MILES!
Longtime reader. First time commenting. I recently got the United Debit card for this exact purpose of quarterly payments ($2=1 point) and find it effective with much lower fees than traditional credit cards. However, it’s clunky with daily maximums and long lead times for interbank transfers to fund it. Not to mention what Ben explained about the need to use multiple IRS vendors to and then multiple transactions.
Ultimately, I’m still on the fence...
Longtime reader. First time commenting. I recently got the United Debit card for this exact purpose of quarterly payments ($2=1 point) and find it effective with much lower fees than traditional credit cards. However, it’s clunky with daily maximums and long lead times for interbank transfers to fund it. Not to mention what Ben explained about the need to use multiple IRS vendors to and then multiple transactions.
Ultimately, I’m still on the fence to use it quarterly as it comes with quite a bit of friction. But if one is up for the challenge and small headaches I found it is a very cost effective solution to earn UA MP points.
Just want to add that there can be a few tradeoffs when paying a service charge on tax payments.
First, you will need around 2% more cash on hand to pay the increased expense. That’s cash that could have been deployed somewhere else for a higher return. For example, many FDIC-insured savings accounts have been paying 3% or higher annual interest lately.
Next, you are in effect exchanging US dollars for a foreign currency (loyalty...
Just want to add that there can be a few tradeoffs when paying a service charge on tax payments.
First, you will need around 2% more cash on hand to pay the increased expense. That’s cash that could have been deployed somewhere else for a higher return. For example, many FDIC-insured savings accounts have been paying 3% or higher annual interest lately.
Next, you are in effect exchanging US dollars for a foreign currency (loyalty points). This means you will be exposed to exchange rate risk (followers of points programs know that devaluations are not uncommon). Also, unlike dollars, points can only be used for a few types of transactions.
Perhaps the biggest tradeoff comes if you have to sell an investment to raise cash. In addition to no longer holding an asset, such as shares in a company, that can increase in value, capital gains taxes and transaction fees can significantly raise the cost of coming up with a given amount of money.
I’m not saying it never makes sense to pay taxes using a credit card. But I don’t think the decision is always as clear-cut as “I’m getting points, let’s do it!”.
There is one additional consideration. If you're self-employed, you can *probably* justify claiming some portion of the payment fee as an expense against your business or partnership income, in which case your effective fee percentage is something less. For example, pay the 1.75% fee, deduct half of it on your Schedule C, marginal tax rate is 35%, you get 0.30625% (1.75% x 50% x 35%) of that fee back as a tax benefit. You'll want...
There is one additional consideration. If you're self-employed, you can *probably* justify claiming some portion of the payment fee as an expense against your business or partnership income, in which case your effective fee percentage is something less. For example, pay the 1.75% fee, deduct half of it on your Schedule C, marginal tax rate is 35%, you get 0.30625% (1.75% x 50% x 35%) of that fee back as a tax benefit. You'll want to consult your tax advisor to see what percentage is reasonable for your circumstances, but if you're effectively paying 1.45% instead of 1.75%, it may make the decision more compelling.
To reiterate what Lucky already said though, DON'T do this unless you have the cash to pay the bill off in full by the next due date. There are very few circumstances, aside from a "pull handle in case of fire" situation, where you want to rack up interest charges on tax payments.
It really does depend on the card product and issuer. Like, BILT explicitly denies awarding points on tax payments, so don’t use your Palladium there. That said, BofA cards usually qualify; when they had the Platinum Honors 75% bonus, getting 2.62 cash back was nice for 1040ES, property taxes, etc., because it would mostly cover the fees for using a card. Even better when BofA does that double points up to $2,500 once a year (usually November).
My wife and I are self-employed and have large quarterly payments to make. While we don't pay all of them with credit cards, we have been paying the Q4 payment in early Q1 of the next year and using a hotel card to achieve status. For example, in early 2025 we paid ~$40K on the IHG Premier card to receive the benefits you list, and the Diamond status was good for all of 2025 and 2026. We are considering "renewing" Diamond status again this way in early 2027.
Ben,
Thanks for posting this - I have been doing this for years and have been happy with this option for my United Club card. A few thoughts:
- While I am not a tax expert, there are situations in which the fees can be tax deductible as a business expense which also help.
- With the UA Club, that is a great opportunity not only for UA miles, which I use...
Ben,
Thanks for posting this - I have been doing this for years and have been happy with this option for my United Club card. A few thoughts:
- While I am not a tax expert, there are situations in which the fees can be tax deductible as a business expense which also help.
- With the UA Club, that is a great opportunity not only for UA miles, which I use all the time for saver awards, but also to get PQP for status thresholds
- A warning though, I will pay with a credit card and then, very quickly, pay off the credit card - but if there is a Credit Sweep (or whatever it is called) between the time of a big charge and when you pay it off, the credit agencies might see this as a big change in the ratio of credit used vs credit spend and your credit score might take a BIG hit which can take a long time to bounce back from. This happened to me and it is annoying (I dont care about my score right now, but it is stupid) and something to consider.
I have heard paying through paypal can be an end run around the high fees on amex and business cards. Is that true? How does one use that route?
you should not have any taxes to pay. your aim is to break even
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...
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.
If I were writing about this subject in the context of miles and points I probably wouldn't mention floating tax payments on 0% introductory offers. While you're right that *if* done responsibly this could be a valuable form of financial engineering it is, unfortunately, the not-so-responsible people who are attracted to this kind of idea. And a miscalculation with a $10,000 tax bill is a very fast way to get in over your head in...
If I were writing about this subject in the context of miles and points I probably wouldn't mention floating tax payments on 0% introductory offers. While you're right that *if* done responsibly this could be a valuable form of financial engineering it is, unfortunately, the not-so-responsible people who are attracted to this kind of idea. And a miscalculation with a $10,000 tax bill is a very fast way to get in over your head in credit card debt.
Instead, I'd make to opposite argument -- I *wouldn't* pay tax by credit card *unless* I already had the cash set aside to pay the credit card bill at the end of the month.
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...
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).
I agree. That would fall into the category of "already having the cash set aside" to pay the charge.
We can also earn points and rewards by docile payment for "resort fees" , "seat selection fees" , and other assorted add-ons .
Taxes are not beneficial because of the credit card Rewards . Actually , taxes strangle a nation's vitality , and are wasted by politicians . The more taxes , the less economic activity .
The less taxes , the better .
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.
And taxpayers in California are on the hook for a high speed train construction from nowhere , to nowhere , through nowhere , taking years and years to prepare , costing billions and billions of dollars .
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.
@LarryInNYC: High tax societies usually work when there is a sense of common national identity and/or a community oriented ethos. Either a large mono-cultural (bordering on xenophobic) country like Japan, or small countries that function like one big happy village where you can't escape your reputation (Denmark, Iceland, etc). Even better if you have oil (Norway).
Doesn't work very well in a fractured society where everyone is looking to find a way to play...
@LarryInNYC: High tax societies usually work when there is a sense of common national identity and/or a community oriented ethos. Either a large mono-cultural (bordering on xenophobic) country like Japan, or small countries that function like one big happy village where you can't escape your reputation (Denmark, Iceland, etc). Even better if you have oil (Norway).
Doesn't work very well in a fractured society where everyone is looking to find a way to play a victim of oppression and views taxes as means to punish the oppressors. Doesn't really matter who the "oppressors" are - depending on your political views, it could be non-white immigrants taking your jobs, or white males taking your money. Populism is the problem.
Let's take a closer look at Denmark: 25% VAT, 25% local tax, 8% FICA-like tax, 12% state (non-local) income tax up to about $110k. All of these are flat taxes that everyone pays (in most cases VAT is actually a regressive tax relative to income). Progressive income tax is an additional 7.5% above $110k, another 7.5% above $130k, and another 5% above $440k. So their max non-local income tax rate is 32%, and the overall tax burden is shared much more evenly than in the US - because in Denmark taxes are a means to fund common projects and everyone has a stake in making sure taxes are not wasted.
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.