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Tax season is in full swing in the US, with federal income taxes being due in a bit over a month. No one likes paying taxes, though at a minimum we should do what we can to get the most out of our contributions to Uncle Sam.
While a vast majority of people pay their federal income taxes in cash, you can (and in most cases, should) also pay by credit card.
How to pay taxes by credit card
There are several third party websites which will allow you to make tax payments by credit card. The service fees for doing so are constantly changing, and the services I recommended last year are no longer the best option.
Right now the best option for paying taxes by credit card is Pay1040.com, which charges a 1.87% convenience fee for using a credit card.
Which credit card should you pay taxes with?
The most obvious answer is that you should use a card on which you have a minimum spend to reach. Many people struggle with reaching the minimum spend on new credit cards, so if you have a big tax bill, this is an easy way to knock $3,000+ of spend out in one swoop.
For example, if you recently picked up the Starwood Preferred Guest® Credit Card from American Express or Starwood Preferred Guest® Business Credit Card from American Express and have $3,000-5,000 of spend to knock out, this is a great opportunity.
But beyond that there are cards where it can make sense to generate everyday spend at a cost of 1.87%.
Using a cashback card
You can come out marginally ahead by paying your taxes with a cashback card.
For example, the Citi® Double Cash Card offers 1% cashback when you make your purchase, and another 1% cashback when you pay for that purchase. So you’d come out 0.13% ahead after you pay off your bill, which is marginally worth it.
You’ll do slightly better on a card like the Barclaycard Arrival Plus™ World Elite MasterCard®, which accrues the equivalent of ~2.1% cashback towards travel. So you’d be coming out a bit more ahead, though you’d have to spend that money on travel. Some people will find cashback cards like this to be worthwhile, while personally it’s not how I’d choose to pay taxes by credit card.
Using a points earning card
If I’m paying taxes by credit card I’d rather use a card which accrues points that I value at more than ~1.87 cents per dollar spent.
The first card which comes to mind is the Starwood Preferred Guest® Credit Card from American Express. If Starwood sold Starpoints for 1.87 cents each, I’d buy them in a heartbeat, so there’s no reason not to pay taxes on them.
Starpoints convert into airline miles at a 1:1 ratio, with a 5,000 point bonus for every 20,000 points transferred. So you basically earn 1.25 airline miles per Starpoints. At 1.87 cents per Starpoints, that’s like paying under 1.5 cents per airline mile. That’s a heck of a deal for Alaska Mileage Plan miles, for example.
Transfer Starpoints to Alaska Mileage Plan for tickets in Emirates first class
Alternatively, the Amex EveryDay® Preferred Credit Card is another fantastic option. The card earns one Membership Rewards point per dollar spent, and when you have at least 30 transactions per billing cycle you get a 50% points bonus. That means you’re earning 1.5 Membership Rewards points per dollar spent. At a rate of 1.87 cents per dollar spent, that’s like picking up Membership Rewards points for ~1.25 cents each. Deal!
Redeem Membership Rewards points for Singapore Airlines Suites Class
While no one likes paying taxes, you might as well maximize the return you get out of that spend. At a cost of 1.87 cents per dollar paid in taxes, I’d say that can be a great option.
Your best bet is to reach the minimum spend on a credit card when paying your taxes, but otherwise I’d use a card which accrues a great return on spend, like the Starwood Preferred Guest® Credit Card from American Express or the Amex EveryDay® Preferred Credit Card.
Do you plan on paying your taxes by credit card, and if so, which card do you plan on using?