Should You Pay Your Taxes By Credit Card?

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Tax season is in full swing in the U.S., with federal income taxes due in a bit over a month. Of course people have different ways they pay taxes, so not everyone still has taxes to pay next month. If that’s the case, maybe you can apply this strategy towards a future tax payment.

While a vast majority of people pay their federal income taxes in cash, does it make sense to pay your taxes by credit card instead? I pay all my taxes by credit card, and think it makes sense for a lot of people to do so. In this post I wanted to outline how that works in general?

What’s the fee to pay taxes by credit card?

There are several third party websites that will allow you to make tax payments by credit card. 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. They let you pay by American Express, Mastercard, Visa, etc.

Taxes-Credit-Card

Which credit cards should you use to pay taxes?

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. That should be the top priority if paying taxes by credit card.

However, there are plenty of other cards where you could come out way ahead by paying taxes for a 1.87% fee.

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.

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.

Personally I don’t think either of those options is worth the hassle, so it’s not something I’d do. Points cards are a different, story, though.

Using a points earning card

If I’m paying taxes by credit card I’d rather use a card that accrues points, where I value the return at greater than 1.87 cents per dollar spent. Which cards come to mind?

At a minimum, I value the return on The Amex EveryDay® Preferred Credit Card from American Express and the Chase Freedom Unlimited® at 2.55%, since I value Membership Rewards and Ultimate Rewards points at 1.7 cents each (which is a conservative valuation, in my opinion).

This is essentially an opportunity to pick up Membership Rewards or Ultimate Rewards points for ~1.25 cents each, which I’d consider to be a very good deal.

A more concrete return — how you can earn a ~60% “profit” 

While I think many will agree with me that picking up Membership Rewards or Ultimate Rewards points for ~1.25 cents each is a great deal, there’s potentially a more concrete return you can achieve, if you’re not yet convinced.

Keep in mind that The Business Platinum® Card from American Express OPEN 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).

When you consider that you’re earning 1.5 Membership Rewards points per dollar spent, that means you’re getting over two cents of airfare per 1.87 cents of fees. That’s a very nice “profit.”

Bottom line

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 paying taxes by credit card can be a great deal.

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 Amex EveryDay® Preferred Credit Card from American ExpressThe Business Platinum® Card from American Express OPEN, or the Chase Freedom Unlimited®.

Those are the cards I’ve been using to pay my taxes, and I think others will find it equally worthwhile.

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


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Comments

  1. It’s also worth pointing out that those with Chase debit cards can get a really sweet return paying with it instead, albeit without the cash flow flexibility of the credit or charge card options.

  2. This is the time to be generous. I will let any of you collect the credit cards rewards by paying my taxes.

    I have enough RewardRewards. I would like to give you a reason to be happy. You don’t need to thank me

  3. Yup ..Pay the IRS,State Taxes (2% fee so what),Car ins, House ins or Big bills then put the card on the shelf after hitting the min plus a few hundred . Then go back to ur INK Card .

    ” I Love the Smell of Free Airfare and Hotels it Smells like Victory ”

    CHEERs

  4. Don’t forget the 2.625% Bank of America travel rewards card if you have a preferred honors relationship. Im trying to hit min spend on both my wives and my spg business now so I’ll do that instead this year.

  5. Mine are $5K back because i over paid for 2 SPG cards for 10 nites. I’m finally just spending my SW gift card i brought to meet the Min after 3 years for a Flight . No hassle no THINKING for Gov 2% .fee .The quick turn around is pay ur Taxes on 1/12/18 then FILE to get it back.It’s hard when ur retired to meet the MIN on a big card no bills !!!!!!!!!!!!!!!!!

  6. Ryan
    Online I made TWO in one quarter then the irs stopped me for THAT quarter .. But u have State ,Prop Taxes I would do this and not with the day to day stuff for 2% fee ..

    CHEERs

  7. Do you know if cc can be used for filing quarterly tax estimates on an LLC for 2017, and if so would that be available as well on pay1040.com?

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