Paying Taxes By Credit Card: How To Come Out Ahead

Paying Taxes By Credit Card: How To Come Out Ahead

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Ah, tax season.

As many Americans are starting to procrastinate finalize their tax returns, questions about earning points for making those payments always come up. That’s particularly relevant this year, and individuals and businesses may be paying two quarters worth of estimated payments along with their 2019 return.

I pay all my estimated quarterly and annual taxes by credit card, so figured it would be helpful to go through the details of that for people who haven’t done it before or might need a refresher. I’ve updated this with new examples since last time we published it, but if you’re already familiar with how to pay taxes with your credit card without paying more in fees than you save, feel free to skip it.

How much does it cost?

If you need to pay State or Local taxes, those rules (and fees) vary tremendously, so you’ll want to check with your local tax authority. For Federal taxes, however, there are three services that can accept credit cards for tax payments, with the following fee structure:

Obviously the best play here is to utilize the service with the lowest fees, but in certain circumstances using one of the others can make sense as well.

Splitting your payments

If you have a very large payment to make that exceeds your limits on your credit card (and if so, congrats on your success last year / I’m sorry), or if you want to spread your spending across multiple cards for other reasons, you can do that.

The IRS page notes that most forms allow you to make two payments via credit card. What isn’t clearly stated, however, is that in practice you can make two payments via credit card with each service, for each period or form.

So theoretically you could make six payments for your 2019 balance due this week, and then another six payments for your Q1 & Q2 2020 estimated tax payments. Typically you’d have been able to do six for each quarter, but given the combined due date this year, I would plan around six total.

Hopefully you don’t need to do that, and keep in mind that the fees for some of the services are higher, but it is an option. The IRS helpfully(?) tracks everything by the primary taxpayer’s social security number, so regardless of which method or service you use, you can easily verify that all payments were received.

Calculate the return

Just because you can put taxes on a credit card doesn’t mean that you should. With fees fluttering around 2%, you shouldn’t pay your taxes this way without calculating your net cost/gain.

These numbers will vary based on how you value miles, but let’s look at a few examples. If you’re using Pay1040.com, for example, which levies a 1.87% fee, here’s what a $5,000 payment (with $93.50 in fees) would look like using Ben’s values on a few different cards:

Card (click card name for more details)
Return on everyday spend
Value of rewards
Net cost of $5k payment
1% cash back when you buy, plus an additional 1% as you pay, but can be combined with other ThankYou points
1.70¢ / $170 with ThankYou
1.00¢ / $100.00 without ThankYou
($76.50) with Thank You
($6.50) without ThankYou
2x points (up to the first $50,000 spent per calendar year) and then 1x
1.70¢ / $170.00
($76.50)
1.00¢ / $131.25 with Preferred Rewards Platinum
($37.75) with Preferred Rewards Platinum
1.5x points (on purchases of $5,000 or more)
1.70¢ / $127.50
($34.00)
1.5x points
1.70¢ / $127.50
($34.00)
2x miles
1.10¢ / $110
($16.50)
1x points
1.5¢ / $75
$18.50
1.5% (without any Preferred Rewards Program bonus)
1.00¢ / $75
$18.50
3x points
0.40¢ / $60
$33.50

Obviously there are many other cards you could consider using here, but hopefully, that helps you get the idea. In general, you want to use a card that offers more than 1x point per dollar on everyday spend, though if you have other goals (are meeting minimum spend, are reaching for a threshold bonus, or are trying to top off for an award), cards with lower earnings rates can make sense too.

Keep in mind that how you are going to use the points matters as well, though isn’t reflected in the table other than the general weighting Ben gives a points currency.

With The Business Platinum Card® from American Express, you’d not only be getting 1.5 points/$1 for a purchase over $5k, the card also gives you a 35% refund when you redeem points through the “Pay with Points” option. This is essentially an opportunity to redeem Membership Rewards points for 1.35 cents of airfare each (either on your designated airline in economy, or on any available airline in business or first class).

So that $5,000 tax payment earns 7,500 Membership Rewards points, which can be used for $115.38 towards airfare through the Pay With Points option. Subtract out the $93.50 in fees, and you’re still coming out ahead even if you don’t accumulate additional points to transfer for a big award (provided you were going to spend money on airfare this year, but I assume that’s why you’re all here).

As you can see, using the right card is critical in order for this to be worthwhile. Though there are a few exceptions where you might accept a lesser return in exchange for another benefit.

Meeting minimum spend

In most cases, even if you apply for a card today and are approved promptly, you unfortunately might not receive it in time to make a payment this week. If you will need to pay estimated quarterly taxes in September, and are planning ahead, you obviously have plenty of time.

Otherwise, American Express often issues temporary cards that can be used for online purchases until your physical card arrives, provided you sign up online and are instantly approved. If you’ve been considering an Amex card, it may make sense to apply for one of those, get the temporary card, and knock out the minimum spend quickly.

And of course, if you’re working towards a large welcome bonus, the return for each $ spent towards the minimum spend is significantly higher, which helps the math as well.

Achieving threshold bonuses

Sometimes it’s not the points themselves that are most valuable, but the extra perks you get for spending a certain amount on a credit card.

For example, the Hilton Honors American Express Surpass® Card and The Hilton Honors American Express Business Card offer a Weekend Night Reward from Hilton Honors after you spend $15,000 in purchases on your card in a calendar year. A $15,000 tax payment would have a net cost of ~$100.50 once you subtract out the value of the Hilton points earned. If you have a particular trip in mind, that could still be an excellent value.

In general, if meeting those spending thresholds wouldn’t otherwise be possible, it’s worth considering if the 1.87-1.99% fee for paying taxes via a card could still be a good value.

Promotional or low-interest opportunities

In general, I wouldn’t recommend putting any large purchase on a credit card unless you also have the cash to pay it off. An unexpectedly large and unaffordable tax bill, for example, is likely best resolved by setting up a payment plan with the IRS.

If you just need a bit of wiggle room, however, it could be worth examining the many cards offering a promotional interest rate on purchases as part of the welcome bonus. The number of months at the promotional rate vary by card, so check the terms, but if you can plan and budget such that the full balance could then be paid in a few months, putting your taxes on an extremely low or even 0% card (that also earns points) could be a good option.

Chase Freedom Unlimited®
Learn More Terms Apply. | See Rates & Fees
  • Earn 3% Cash Back on Dining
  • Earn 3% Cash Back at Drugstores
  • Earn 1.5% Cash Back On All Other Purchases
  • $0
Chase Freedom Flex℠
Learn More Terms Apply. | See Rates & Fees
  • Earn 3% Cash Back on Dining, Takeout and Eligible Delivery Services
  • Earn 5% Cash Back at Grocery Stores (excluding Target®, Walmart®)
  • Earn 5% Cash Back with Select Streaming Services
  • $0
Ink Business Cash® Credit Card
Learn More Terms Apply. | See Rates & Fees
  • Earn 5% Cash Back at office supply stores
  • Earn 5% Cash Back on internet, cable TV, mobile phones, and landlines
  • Car Rental Coverage
  • $0
Ink Business Unlimited® Credit Card
Learn More Terms Apply. | See Rates & Fees
  • Earn unlimited 1.5% cash back on all purchases
  • Car Rental Coverage
  • Extended Warranty Protection
  • $0
Citi® Double Cash Card
Learn More Terms Apply. | See Rates & Fees
  • Earn 1% cash back when you make a purchase, earn 1% cash back when you pay for that purchase
  • $0
Citi Rewards+® Card
Learn More Terms Apply. | See Rates & Fees
  • ThankYou Point Round Up
  • Points Back on Redemptions
  • No Annual Fee
  • $0
Blue Cash Everyday® Card from American Express
Learn More Terms Apply. | See Rates & Fees
  • 3% Cash Back at U.S. Supermarkets
  • 2% Cash Back at U.S. gas stations
  • Access to Amex Offers
  • $0
Blue Cash Preferred® Card from American Express
Learn More Terms Apply. | See Rates & Fees
  • 6% Cash Back at U.S. Supermarkets
  • 6% Cash Back On Streaming
  • 3% Cash Back On Transit
  • $0 introductory annual fee for the first year, then $95
The Blue Business® Plus Credit Card from American Express
Learn More Terms Apply. | See Rates & Fees
  • 2x points on purchases up to $50k then 1x
  • Access to Amex Offers
  • No annual fee
Capital One VentureOne Rewards Credit Card
Learn More Terms Apply. | See Rates & Fees
  • Earn unlimited 1.25x miles per dollar on every purchase
  • No Foreign Transaction Fees
  • No Annual Fee
  • $0
Capital One Quicksilver Cash Rewards Credit Card
Learn More Terms Apply. | See Rates & Fees
  • 1.5% cash back on all purchases
  • No Foreign Transaction Fees
  • Promotional APR on Purchases
  • $0
Capital One SavorOne Cash Rewards Credit Card
Learn More Terms Apply. | See Rates & Fees
  • Earn 3% cash back on dining
  • Earn 3% cash back on groceries
  • No Foreign Transaction Fee
  • $0

Bottom line

Earning a chunk of points can take some of the sting out of making tax payments, but be sure the return or benefits make sense for your situation before paying that extra fee.

Who else pays taxes with a credit card? Which card are you using this time around?

Conversations (15)
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  1. ovacikar

    Ops i see it is already covered later in the article. feel free to delete previous post!

  2. ovacikar

    Hello Ben,

    Amex Hilton Surpass gives free night certificate for $15000 spend, Are the tax processing fees worth to spend $15000 on this card to get 45000 points plus a free night certificate?

    PS: Also on this page your Hilton point valuation is 0.4 instead of 0.5

  3. Shake

    @Kyle, your own calculation is right but clearly you did not get the whole point of this post lol. The row for Citi DC in the table implies a *negative* "Net cost of 5k payment" = profit for you. And your math gives the cash value of the profit (which is mentioned as without ThankYou in the table), but Ben is leveraging the fact that you can convert your cashback 1:1 to ThankYou points (which...

    @Kyle, your own calculation is right but clearly you did not get the whole point of this post lol. The row for Citi DC in the table implies a *negative* "Net cost of 5k payment" = profit for you. And your math gives the cash value of the profit (which is mentioned as without ThankYou in the table), but Ben is leveraging the fact that you can convert your cashback 1:1 to ThankYou points (which he absurdly values at 1.7 cent for point), thereby arriving at the 76.50 figure.

  4. JN2

    Thanks, Tiffany, and big thanks to upstater for the reminder about the credit card processing fees for paying taxes with a credit card being deductible for self-employed people who report self employment income on Schedule C. That saved me a few hundred dollars on taxes. I'm glad I procrastinated with filing my taxes :-)

  5. Terry

    @Joseph -- I haven't paid a credit card interest charge in > 30 years. If you use them responsibly (i.e., pay off the balance each month), what's the big deal? I suspect most people here are adults & responsible.

  6. Ed

    Just paid my 2019 tax's with my new (just arrived today), Bank of America Premium Rewards card as a Platinum Honors member I'm looking forward to racking up an awesome amount of points. The amount I paid will qualify me for the $500 bonus, one click and I met the minimum spend.

  7. Kyle

    Something doesn't quite add up with the math, especially for a calculation as basic as 2% back on Citi's Double Cash.

    $5,000 taxes * (2% cash back) + $93.50 processing fee * (2% cash back) nets $101.87 in Citi cash back.

    $101.87 Citi cash back minus $93.50 process fee still gets you $8.37 in "profit." It's not much, but it's definitely not negative as the table in the article would imply.

    And yes, the processing...

    Something doesn't quite add up with the math, especially for a calculation as basic as 2% back on Citi's Double Cash.

    $5,000 taxes * (2% cash back) + $93.50 processing fee * (2% cash back) nets $101.87 in Citi cash back.

    $101.87 Citi cash back minus $93.50 process fee still gets you $8.37 in "profit." It's not much, but it's definitely not negative as the table in the article would imply.

    And yes, the processing fees are separate line items on the cards and therefore earn their own points or cash back. That would makes the entire table wrong because it's calculated only on the tax amount and excludes earnings on the $93.50.

  8. ssss

    The Alliant Credit card is also an option. While the current 2.5% with a max of 10k/billing cycle isn't as good as it was, with proper planning, for a significant taxes, it is a viable option.

  9. Alan

    Back when I was flying I used the Chase Freedom Unlimited, 1.5 points per dollar but when combined with Sapphire Reserve and the 50 percent bonus for booking through them it equates to 2.25 percent. This year I'm using a Fidelity card that offers 2 percent cash back. Only at .13 percent difference but every dollar helps.

  10. Nun

    Me M - Yes I think one of the 3 allows PayPal.

    Ben - In the past you wouldn't be able to make some payments 1 week before the deadline and then more next week when the new quarter starts. Maybe it will be allowed this year, but normally there is a 30 or 45-day period before the next quarter payments are accepted. At least that's been my experience.

  11. Tim

    @Joseph calm down, I'm a tax accountant and routinely use credit cards to pay my taxes. Then within 48 hours I promptly pay the credit card. Yes, don't go in debt for taxes but if you manage your money properly, this is an easy way to get a sh!t ton of points. I advise several clients who are responsible to do the same. Every choice in life can be abused but doesn't mean responsible people should not do it.

  12. Joseph

    Ahh, the annual post on teaching americans how to be even more reckless with their spending!

    I understand the math/logic of your example. But I think it's very irresponsible to promote this practice and even worse since you are likely profiting off people clicking on those 3 companies.

    Please stop supporting this type of behavior. While you can go through some mental gymnastics to show how this could be profitable, for the vast majority of...

    Ahh, the annual post on teaching americans how to be even more reckless with their spending!

    I understand the math/logic of your example. But I think it's very irresponsible to promote this practice and even worse since you are likely profiting off people clicking on those 3 companies.

    Please stop supporting this type of behavior. While you can go through some mental gymnastics to show how this could be profitable, for the vast majority of readers this will simply end up in higher overall tax cost.

    1. Tiffany

      @ Joseph -- We don't make anything from any of those three companies. Both Ben and I pay our taxes via credit cards this way, and have for years.

      That's also why I included examples of cards it doesn't make sense to pay taxes on, along with numerous other caveats.

  13. Me M

    Can you use PayPal as a payment option? If so DiscoverIT is running 5x on PayPal this quarter.

  14. upstater

    As a sole proprietorship business, it is possible to deduct the 1.87% fee from Schedule C. In the top tax bracket, this nets to roughly 1.2%. With the Amex Business Platinum card and 1.5 points per dollar, it makes it worthwhile. But you may have call to insure you card can handle the amount due. We had to call twice.

    Now if we could start using those points!!!

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ovacikar

Ops i see it is already covered later in the article. feel free to delete previous post!

ovacikar

Hello Ben, Amex Hilton Surpass gives free night certificate for $15000 spend, Are the tax processing fees worth to spend $15000 on this card to get 45000 points plus a free night certificate? PS: Also on this page your Hilton point valuation is 0.4 instead of 0.5

Shake

@Kyle, your own calculation is right but clearly you did not get the whole point of this post lol. The row for Citi DC in the table implies a *negative* "Net cost of 5k payment" = profit for you. And your math gives the cash value of the profit (which is mentioned as without ThankYou in the table), but Ben is leveraging the fact that you can convert your cashback 1:1 to ThankYou points (which he absurdly values at 1.7 cent for point), thereby arriving at the 76.50 figure.

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