Paying your taxes by credit card — does it make sense to pay a 1.88% fee?

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Update: This offer for Barclaycard Arrival Plus™ World Elite Mastercard® is expired, but there’s currently an opportunity to earn 50,000 miles after spending $3,000 within first 90 days of having the card. Learn more about the special offer here.

Paying taxes sucks, though somehow it sucks slightly less when you can earn some points for paying them, even at a cost. In January Gary outlined how to pay taxes using a Suntrust Delta SkyMiles debit card for a flat fee of $3.49, which is a ridiculously good deal. No matter how big your tax bill is, you can pick up one SkyMile per dollar spent, and pay a flat fee of $3.49.

But if you don’t have a Delta SkyMiles debit card there are at least some other ways to rack up miles. For example, ChoicePay will let you pay your taxes by credit card for a fee of 1.88%, while payUSAtax will let you pay your taxes by credit card for a fee of 1.89%.

I’ve been asked by several readers under which circumstances it can make sense to essentially “buy” credit card spend at a fee of 1.88%, so I figured I’d share my thoughts. Please keep in mind that some of the below strategies involving thresholds only apply to those that owe a lot in taxes, though I’ll share them anyway since I think it’s threshold bonuses that can make this worthwhile.

Starwood Preferred Guest® Credit Card from American Express, and Starwood Preferred Guest® Business Credit Card from American Express 

Starpoints are the single most valuable points currency, in my opinion, and I value them at about 2.2 cents each. Since Starpoints convert to airline miles at a 1:1 ratio with a 5,000 point bonus for every 20,000 points transferred, this is also a way of picking up miles in a variety of programs for ~1.5 cents each. I’d say that’s a bargain.

For that matter Starpoints are one of the best currencies for booking Emirates awards, given that they partner with Japan Airlines. Between New York and Dubai, for example, they charge just 85,000 miles in business class or 135,000 miles in first class. At 1.5 cents per Japan Airlines mile, that’s a steal.

Citi® Hilton HHonors™ Reserve Card

On one hand I have a really hard time suggesting anyone rack up Hilton points after the devaluation a couple of weeks ago, though there are two circumstances under which I think it can make sense to pay with the Hilton Reserve card. First of all I should say that I value their points at 0.4 cents each, and you earn three points per dollar spent on “base” spend.

That means $10,000 of spend on the card will get you 30,000 HHonors points, but the bonus is that you get a free weekend night certificate valid at almost all properties. So if you’re paying $188 in fees and getting $120 “worth” of points, then you’re basically paying $68 for a weekend night certificate valid at some really nice properties.

Similarly, if you can get $40,000 of spend on the card you’d be looking at about $752 in fees. That would get you 120,000 points (worth $480 to me), so for $272 you’d be picking up a free weekend night certificate and top tier Diamond status in the HHonors program. Or to do the marginal analysis on that above $10,000 of spend, you’re looking at spending $204 for Diamond status. I mean, you can’t go that wrong with that, can you?

Barclaycard Arrival Plus™ World Elite Mastercard®

As I wrote about last week, the Barclaycard Arrival Plus™ World Elite Mastercard® basically offers 2.1% cash back towards travel. So if you’re paying a fee of 1.88%, you’re looking at a “gain” of 0.34% per dollar spent. Now, the catch of course is that you’re converting cash into “travel cash.” Whether or not that’s worth it to you depends on your situation, though I know in some cases it can make sense.

British Airways Visa Signature® Card

I ultimately made the decision to dump the British Airways Visa last year. However, the main benefit of having the card is a companion certificate valid for travel on British Airways when you spend $30,000 on the card in an annual year. So if you have a huge tax bill and value the companion certificate, the card can make sense. I value British Airways Avios at 1.3 cents each, and you earn 1.25 Avios per dollar spent on the card, meaning by my valuation you’re getting a “return” of 1.625% on the card. So on $30,000 of spend that means you’d basically be paying a “premium” of 0.255% for the option of earning the companion certificate, which comes out to $76.50. If only British Airways’ fuel surcharges were that low. 😉

Marriott Rewards® Premier Credit Card

While it’s not something I’d personally take advantage of, Marriott offers one elite night credit for every $3,000 spent. I value Marriott Rewards points at 0.8 cents each, so on the surface you’re only getting a “return” of 0.8 cents, while you’re paying 1.88 cents per point. But basically you can pick up elite night credits at $32.40 each by that valuation. That’s a mattress runner’s wet dream. Now, I’m not a huge fan of the Marriott Rewards program to begin with, though if you’re a bit short on status that could be a good path to take.

Chase Hyatt Visa Card

If you spend $40,000 on the Hyatt Visa card annually you earn five stay credits and ten night credits towards elite status. I conservatively value Hyatt points at 1.6 cents each. So over $40,000 worth of spend you’d be paying $112 more than the value of points for those five stay credits and ten night credits towards status. Given that Hyatt is otherwise pretty strict about requalifying for status, in many circumstances I’d say that’s a great deal.

While there are some other cards out there where it can make sense to essentially rack up spend at a fee of 1.88%, I think the above are some of the best options. Did you pay your taxes by credit card, and if so, which did you end up using?

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  1. Although devalued, you can still do the vanilla/bluebird approach at cvs using Amex honors with a 6x bonus, if you can find the cards that is.

    After May’s closing date, no more 6x bonus.

  2. I actually think it makes the most sense if you want to apply for a card that has a relatively high spending requirement for a bonus. In my case, I owe about $6000 in property taxes. I plan on applying for the Ink Bold or Plus, with the $5K spend requirement for the bonus. Paying my property taxes with it will net me 56,000 ultimate rewards points (which I would value at ~$1,000), for a fee of just a bit over $100.

    I would otherwise struggle to hit that spending requirement, given some of the other cards I need to hit some thresholds on.

  3. I had a $38,000 tax bill and used my Chase British Airways card, which only had the first 50k Avios bonus triggered. So, for that $38,000, I earned 97,500 Avios (the 1.25x for the $38,000 spent, plus 25k bonuses after spending $10,000 and $20,000 on the card) plus the BA companion certificate. By Lucky’s value at 1.3c/pt, I generated $1267.50 of value with the Avios and paid $714.40 in fees, so I produced $553 of excess value by making the tax payment. And that’s before the companion certificate (which I honestly probably will not use, considering the fees and the likelihood that I use the points strictly for CX and AA redemptions).

    Had that not been an option, I probably would’ve used the SPG biz card and made a slight profit.

  4. One other consideration for Hyatt Visa holders. Chase’s spring promotion is 25,000 bonus Hyatt points for $25,000 in spend between 4/1 and 6/30/2013. A big tax bill could get you most of the way to the bonus.

  5. @ Bruce — Seems to be targeted, no? Don’t think I got the offer. That’s quite a promo, though.

  6. Frequent Miler covers this topic much better. He explains how to use gift cards that you buy online to pay your taxes. (Gift cards are treated like debit cards)

  7. The Hyatt Visa bonus offer was targeted based on historic spend with the target seemingly encouraging higher spend levels.

  8. You could also use the new Barclay card that “earns 2.2% cash back” and make some money.

    2.20 – 1.89 = .31, earning $0.0031 cents per dollar spent on taxes.

  9. Why didn’t you include the Club Carlson card? 5x the points on all spend… each point worth about .4 cents… which would be 2 cents per dollar value. Also, if you have the card, you get the 2 for 1 redemption benefit, elevating it to 4 cents per dollar redemption value. This would negate the 1.88% fee.

  10. This is one of those deals where I hold my nose and hit charge on the BA card since I want the last 10k to reach the Free companion ticket…….since I will be using it to fly 2 FC to France I don’t see having to hold it that long………..I am hooked on the BA two FC for 168k especially when they are giving away 100k on the goal………..fuel surcharge is worth it when I compare the ease of booking these versus looking for AA or UA awards…………

  11. I just used my new Sapphire card for property taxes to hit the $3,000 in 3 months spending to get the 40k in points. But does it make sense to keep going? I have federal and state taxes to pay yet and either I do it by straight up check to the government or I could gain miles for this. Any thoughts?

  12. @ thedubc — I’d say earning 1.07 Ultimate Rewards points at a rate of 1.88 cents per dollar spent is close to the breakeven point. If you’re short on points I might consider it, though I’d also consider instead putting the spend on a card like the Starwood American Express or one of the above cards based on how it meets your needs.

  13. So I guess its worth it. Im basically being forced to “buy” miles. If I must pay my taxes, I might as well get some points for it. It would be different it I was spending $10,000 on 1 point per dollar material item. For example, If I were to spend $10,000 on a TV at a store that gave me 1 point per dollar, Id earn 10700 points. Im not quite short on Points, but Im a hoarder of points. I might as well keep racking them up and use them wisely. With my UAL Select card, I cashed in close to (7) domestic tickets last year (25k tickets). The double and triple points added up quickly plus bonus for sign up a year or so ago. Now I have the Sapphire card as well, trying to use this card for hotels and rental cars, gas, etc. Restaurants are double miles on both cards. But UAL gives me double on gas as well and home improvement stores, and triple on UAL ticket purchases. While I dont try to fly UAL all the time, it does seem to make me want to at least consider purchasing tickets to rep the triple bonus miles if I have to fly anyways.

  14. the united club card that earns 1.5 miles per dollar is worth mention too. the old Travelocity 4% card is still the king though. unfortunately it’s no longer open to new applicants.

  15. Can someone check my math here?

    If I have a $10,000 tax bill. I put this on my card using payusatax. They charge $186. (1.86 processing fee).
    United to buy 10,000 points is $376.00. So basically Im saving $190 + gaining 10k miles.

    Am I missing something here?

  16. @thedubc YES you are missing that you should be getting 50,000 miles if you are using the Ink Bold or Ink Plus to accomplish this…….so the savings is more like $1694………..

  17. Justsaying.. what can I say, Im poor planner. Im getting my 40k bonus sapphire points for my property taxes. Next time around I will apply for the Ink Bold card. But in the mean time I only have my Sapphire and UAL Select card. Between these, I assume my math is correct.

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