5 Credit Cards You Should Consider Paying Your Taxes With

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Paying taxes sucks (well, unless I have any readers who work for the IRS, in which case I’d like to say thanks for working tirelessly to fund freedom). 😉

But oddly paying taxes stings slightly less when you earn miles for it. Even if there’s a fee involved.

Now that we’re in tax season, I figured I’d share the best way to pay your taxes by credit card, and also share my thoughts on whether it makes sense to do that or not.

Two websites to consider for paying your personal federal income taxes by credit card include the following:

  • payUSAtax, which charges a 1.87% credit card convenience fee, except for Visa cards, for which they charge a 2.29% convenience fee
  • ChoicePay, which charges a 1.88% credit card convenience fee for American Express, Mastercard, and Visa

PayUSATax

While 1.87-1.88% on a tax payment can add up, I think there are some cards on which it can absolutely make sense to pay the fee to pick up points.

I figured I’d share the top five cards on which I’d consider paying taxes.

Let me just add the disclaimer that I realize everyone has different tax liabilities, so obviously the below will be of differing value depending on whether you pay $1,000, $10,000, $100,000, or $1,000,000 per year in taxes. 😉

Discover it Miles Card

This is a new offering by Discover, and is unique in that it offers 1.5% cash back, and then the “sign-up bonus” is basically an additional 1.5% cash back for the first year, so you get 3% cash back. The only catch is that you only get the second 1.5% cash back after your first year as a cardmember.

Crunching the numbers

If you’re paying a 1.87% fee for 3% cash back, you’re basically earning 1.13% on paying your taxes. On a $10,000 tax payment, that’s like making $113 on paying your taxes. Who wouldn’t want to make money while paying taxes?

free-money

Amex EveryDay® Preferred Credit Card

This is a fairly new offering by American Express, and what makes this card so unique (among other things) is that you get 50% more points on purchases when you make 30 or more purchases with your card during a billing period. So on non-bonused spend, that means you’re earning 1.5 Membership Rewards points per dollar.

Crunching the numbers

Given that you’re paying a 1.87% fee and earning 1.5 Membership Rewards points per dollar, that’s like earning Membership Rewards points for 1.25 cents each. That’s a steal. Just be sure you’re making at least 30 purchases during the billing cycle in which you pay your taxes.

Singapore-First-Class-8
Redeem your Membership Rewards points for lobster thermidor in Singapore Airlines first class

Starwood Preferred Guest® Credit Card from American Express

As far as I’m concerned, Starpoints are the single most valuable points currency out there, and I value them at 2.2 cents each. That’s because they can be efficiently used both for hotel stays as well as for airline transfers. For every 20,000 points you transfer to a partner airline, you get a 5,000 point bonus.

Crunching the numbers

Using an SPG Amex to pay your taxes is like earning Starpoints for 1.87 cents each.

Beyond that, assuming you transfer points in 20,000 point increments, that’s like earning airline miles for 1.56 cents each (since that you get 25,000 airline miles for 20,000 Starpoints). Given that I’ve frequently purchased Alaska miles for over two cents each, that’s a great deal, in my opinion.

Cathay-Pacific-First-Class-04
Transfer Starpoints to Alaska Mileage Plan for redemptions in Cathay Pacific first class

Barclaycard Arrival Plus™ World Elite Mastercard®

While not as profitable on a per dollar basis as the Discover it Miles Card, you can earn a small return by paying taxes with your Arrival Plus Mastercard. With this card you earn two miles per dollar spent, and each mile can be redeemed for one cent towards the cost of a travel purchase. Beyond that, you get a 5% refund on miles redeemed, meaning each dollar of spend on the credit card is worth ~2.1%.

Crunching the numbers

Given the 1.87% fee, that’s like earning 0.35% cash back. On a $10,000 tax payment, that’s like making $35 on paying your taxes. While not exciting, perhaps, free money is free money, no?

Club Carlson Premier Rewards Visa Signature® Card

This card earns five points per dollar spent. What makes the card so lucrative, though, is that the second night of every award redemption is free. That means you can basically double the value of your points in conjunction with the credit card, assuming you stay in two night increments.

Crunching the numbers

Taking into account the 1.88% credit card convenience fee, you’re earning Club Carlson Gold Points for ~0.38 cents each. So on a $10,000 tax payment, that means you’d earn 50,000 Gold Points at a cost of $188. That would be enough for two nights at a Radisson Blu in London, which in some cases retails for $450+ per night (not that I’d ever pay those prices for a Radisson Blu). But when you’re paying ~$94 per night, that’s an unbeatable value.

Radisson

Bottom line

It amazes me how many people I talk to that don’t pay their taxes with credit cards. Is it the best deal in the history of the world? No. But at the same time I can’t turn down Membership Rewards points for ~1.25 cents each, or Club Carlson points for under 0.4 cents each, for example. And this is about as low effort as credit card spend gets.

Do you pay your taxes by credit card? If so, which card do you use?

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Comments

  1. A very timely post as I was just considering my options yesterday. Do you know if there are any places that consider an Amex debit as a debit transaction?

  2. Lucky, I’ve sometimes used the AA exec platinum card to pay my taxes to get me above the $40,000 spending threshold to get the additional 10,000 EQMs. It saves time and money in the sense that it I don’t have to plan out two mileage runs at the end of the year.

  3. I dislike paying taxes but I have done it for many years and plan to continue to do it for many more. Last year was the first year I paid using credit cards for the miles and points. It worked out well. The “cost” of using cards is a write-off for me this year. My trip form myself and wife to London, Amsterdam and Paris in July is fully paid for using the points I earned barring a handful of associated taxes and fees. Yes, my tax bill was a big one. Oh the joys of self employment.

  4. Good article. Would you recommend applying for and then using any specific card that comes with a nice bonus but requires a large spending minimum? (For example, $10,000 spending within the first three months, or even $5k, split among husband and wife)

  5. So this means, I could pay my estimated tax payment in any amount I desire, earn miles/points on that payment. Of course I then get my over payment back via direct deposit when I file my taxes. This basically will allow me to purchase unlimited miles at the quoted rates.

  6. @ AdamH — Hmmm, I could be mistaken, but I don’t believe so. Someone correct me if I’m wrong.

  7. @ Rom — Ultimately the single best use of tax payments by credit card is if you can reach minimum spend with it, so if there’s a card you’re eying with high minimum spend, this is absolutely the card I’d put that payment on.

  8. @Lucky – Does that mean that Dave S. can pay $1,000,000 in (overpaid) taxes and get $1,000,000 minus his taxes back while earning a million points?

  9. Does anyone who has a salaried corporate job where taxes would normally be withheld in each paycheck set up their withholding to be $0 and pay quarterly estimated taxes with a credit card instead? It just seems like such a marginal activity to do this.

    As lucky says, if you have a $10,000 tax liability (which roughly would equate to the federal taxes on a $75k salary for a single person) you are potentially making $113 with the discover card. Is that worth it?

  10. Would also add the following 3 cards for actual points earning:
    1.) Amex Blue for Business (gives 30% annual bonus) so MR points can be obtained for 1.44c
    2.) Chase United Explorer (spend $25k and get 10k bonus miles), assuming one maximizes making exactly a $25k payment then United points can be obtained for 1.34c
    3.) Chase British Airways (earns 1.25x ) so avios can be obtained for 1.5c

  11. The US Airways Premier World Mastercard seems like a good choice for tax payment as well. They have a 50% miles bonus through June so you can get 1.5 US Airways points per dollar spent. Each mile worth ~1.7 cents according to some bloggers.

  12. I try and arrange credit card sign ups to coincide with tax payments. That way a few hundred dollars get 50k or so points quickly.

  13. None of the above. Why not sign up for UFB Direct and get the debit card that pays 1 AA mile per $2 and just pay the $2.79 fee?

  14. @ Lynn — I value points with both currencies at about 1.8 cents each and they don’t offer threshold bonuses, so they wouldn’t be my preferred card.

  15. @Abdel Rahim Abdallah: Sure, if Dave S. has a credit limit or charge card that will authorize a $1 million transaction.

  16. @jon -Would you like to pay my taxes for me ?

    Overpaying taxes is fine if you get the money back in short order. There’s a cost of carry. Overpaying by a lot (oh $1 mill extra would be a lot) is likely to draw IRS scrutiny according to my CPA. I asked a long time ago.
    Back in the 70’s refunds over $250k required approval of a Congressional subcommittee, or so I’m told by someone I believe, who had to wait for approval.
    This year I believe you can get 10% Amazon bonus on the amount of a turbotax refund directed to an Amazon account. iI’m not sure of the procedure for that.

  17. I have paid my taxes with credit cards the past two years. Two years ago I used a Starwood Amex. I didn’t think it was the world’s greatest deal, but I get more than 2 cents of value for redeeming at hotels, so I figured it was worth it. Last year I did it to meet the $10K minimum spend on the Citi AA Executive card, and I considered that a no-brainer. Indeed I signed up for the Executive when I did specifically because I knew I could use the tax payment to meet the required spend.

  18. How can I pay taxes with credit card when due amount is higher then credit card limits? I usually reduce lCC limit on all my accounts to $10,000 to increase my chances for future credit card approval. My tax bill is quite high, so can I make multiple payments with same credit card or multiple credit cards? Thx

  19. @ kalvydas — You can make up to two payments per payment period. So unfortunately if you have a low credit line and high tax payment you might not be in luck. If you really want to pay by card you might be better off using a charge card which has no pre-set spending limit.

  20. Hi Lucky, if I have a low credit line but high tax bill, which are the best charge cards that you will recommend? Thanks.

  21. @ LL — They aren’t necessarily all that “profitable” in this case, but in theory you could use a card like the Premier Rewards Gold Card. It’s only marginally worthwhile, though, so I probably wouldn’t use a card.

  22. @kalvydas: You can actually make more than 2 payments per quarter if you call Official Payments Corp and have them process it over the phone.
    My CPA checked out if there was a penalty for violating the 2 payments rule and was told ,”no”

    I’ve made as many as 40 payments , but only Official payments will do this. They also own one of the other tax payment services on the IRS list.
    If you have the Suntrust DL debit card you can pay $35000 per day for $3.

  23. Question. I know you typically attempt to find cards that have a flight point/miles return greater than 1.87% per. However, what if you own the United Mileage Plus Card for your non-bonus spend? Each United mile is worth 1.4 cents. However, with the Mileage Plus card, you would earn 1.5 miles per dollar. So $1 spent for your taxes earns 1.5 points or 2.1% per dollar. Does this make sense?

  24. @ aaron biner — Yep. I’d say it’s a marginal return, but I do think you come out ahead under those circumstances.

  25. I have a 24K tax bill and a 20K limit on my CitiAA card. I was thinking of using this card to get close to the 40K spend and 10KMQM.
    I was thinking of overpaying my credit card by $4K so that I could pay the tax bill with it. Have you ever done anything like that? Other wise I guess I could spit the payment with another card but I would rather pay it all at once.

  26. @ danray — In my experience overpaying doesn’t help. It doesn’t actually increase the amount you can spend. Keep in mind you can make it as two transactions. Pay $20K today, pay the bill off tomorrow, and then the next day you can pay the remaining amount.

  27. Thanks for the tips Ben! I also think paying your taxes with a credit card is great way to quickly meet those high spend requirements for credit card bonuses!

  28. Paid taxes this morning with two cards, total fee of $588. The fee is also a write off on next years taxes. Good deal all the way around!

  29. I know there are a few changes to these cards, I would love to hear if you have any cards you would add or delete from this list now 9 months later.

  30. You can over pay tax with CC. Then claim tax refund in store gift card using H&R block’s 10% promotion to maximize your reward.

  31. I used AMEX everyday prefer to pay irs tax but I did not see them on the pending points. I called the rep, they told me it MIGHT NOT be an eligible purchase. They want me to call back after statement post… 🙁

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