Paying Taxes By Credit Card: How To Come Out Ahead

Filed Under: Advice, Credit Cards
In the interest of full disclosure, OMAAT earns a referral bonus for anyone that’s approved through some of the below links. The information and associated card details on this page for the Bank of America® Premium Rewards® credit card card has been collected independently by OMAAT and has not been reviewed or provided by the card issuer. These are the best publicly available offers (terms apply) that we have found for each product or service. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, hotel chain, or product manufacturer/service provider, and have not been reviewed, approved or otherwise endorsed by any of these entities. Please check out our advertiser policy for further details about our partners, and thanks for your support!

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 spendValue of rewardsNet cost of $5k payment
Citi® Double Cash Card1% cash back when you buy, plus an additional 1% as you pay, but can be combined with other ThankYou points1.70¢ / $170 with ThankYou
1.00¢ / $100.00 without ThankYou
($76.50) with Thank You
($6.50) without ThankYou
The Blue Business® Plus Credit Card from American Express2x points (up to the first $50,000 spent per calendar year)1.70¢ / $170.00($76.50)
Bank of America® Premium Rewards® credit card + Preferred Rewards Program2.625% with the Preferred Rewards Platinum Honors program,1.00¢ / $131.25 with Preferred Rewards Platinum($37.75) with Preferred Rewards Platinum
The Business Platinum Card® from American Express1.5x points (on purchases of $5,000 or more)1.70¢ / $127.50($34.00)
Chase Freedom Unlimited® or Chase Ink Unlimited1.5x points1.70¢ / $127.50($34.00)
Capital One® Venture® Rewards Credit Card or Capital One® Spark® Miles for Business2x miles1.10¢ / $110($16.50)
Brex for Startups1x points1.7¢ / $85$8.50
World of Hyatt Credit Card1x points1.5¢ / $75$18.50
Bank of America® Premium Rewards® credit card1.5% (without any Preferred Rewards Program bonus)1.00¢ / $75 $18.50
Hilton Honors American Express Surpass® Card or Hilton Honors American Express Aspire Card3x points0.40¢ / $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.

Promotional interest cards

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?

The comments on this page have not been provided, reviewed, approved or otherwise endorsed by any advertiser, and it is not an advertiser's responsibility to ensure posts and/or questions are answered.
Comments
  1. 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!!!

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

  3. 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.

  4. @ 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.

  5. @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.

  6. 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.

  7. 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.

  8. 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. 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.

  10. 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.

  11. @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.

  12. 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 🙂

  13. @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.

Leave a Reply

If you'd like to participate in the discussion, please adhere to our commenting guidelines. Your email address will not be published. Required fields are marked *