Paying Taxes With Credit Cards

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Ah, tax season.

As many Americans are finalizing their 2017 tax returns this week, questions about earning points for making those payments always come up.

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.

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.

For example, the Chase Freedom® Card is offering 5x points for up to $1500 in purchases made through PayPal for Q1 of 2018. Some of these services accept PayPal at the same rate as other credit card purchases, so if you have a small tax payment, or if you’re able to split your payment, it’s certainly worth putting ~$1500 on the Chase Freedom (well, or $1473 if using Pay1040.com, which should be $1500.55 when the fees are added in). Other cards are more lucrative after that first $1500, so being able to split payments is nice.

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 2017 balance due this week, and then another six payments for your Q1 2018 estimated tax payment.

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.

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:

CardReturn on everyday spendValue of rewardsNet cost of $5k payment
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)
The Business Platinum® Card from American Express OPEN1.5x points (on purchases of $5,000 or more)1.70¢ / $127.50($34.00)
Chase Freedom Unlimited® 1.5x points1.70¢ / $127.50($34.00)
Citi® Double Cash Card1% cash back when you buy, plus an additional 1% as you pay1.00¢ / $100.00($6.50)
Barclaycard AAdvantage Aviator Silver Card1x miles1.30¢ / $65.00$28.50
Hilton Honors Ascend Card from American Express3x points0.40¢ / $60$33.50

Obviously there are many other cards you could consider using here, but hopefully that helps you get the idea.

Keep in mind that how you are going to use the points matters as well. With The Business Platinum® Card from American Express OPEN, 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

Ideally you would have planned this out a few weeks ago so as to have your new cards in-hand, but if you missed that boat there are still options.

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.

American fliers, for example, may find value in charging large amounts to Barclay’s AAdvantage Aviator Silver Card early in the year. This card gets you:

  • Up to 6,000 worth of elite qualifying dollars (3,000 when spending $25,000, and another 3,000 when spending another $25,000)
  • Up to 10,000 elite qualifying miles (5,000 when spending $20,000, and another 5,000 when spending another $20,000)

That extra elite qualifying spending may put you higher on the upgrade list, which depending on your travel patterns could be a worthwhile benefit even if it’s costing you a bit for that spend.

Similarly, the Hilton Honors Ascend Card from American Express 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.

0% interest

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 0% 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 a 0% card (that also earns points) could be a good option.

0% 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?

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Comments

  1. We paid our taxes with a card. Signed up for the Amex Everyday, $2k for 25k points. Taxes were just over $2k so we netted 25k points for a fee of 2.5% (state tax processor). Came out ahead, even if we were to pay our statement balance with points (which we won’t)

  2. No mention of using Chase Freedom through Paypal for 5% back? Seems like a glaring omission for 2018.

  3. I paid my federal with my new blue business plus amex with Ben’s 10k sign up link. Not the best return, but better than just doing it without a bonus. Definitely worth while.

    Its also worth noting that you can write off the fee that the website charges you as a business expense on next year’s taxes, which further enhances your return in an indirect way.

  4. Dropped my 22 grand tax bill (Roth convs) on united club card. Was charged around 400 for that. Got around 34000 mile at 1.5 mile/usd. Works out to around 500 at .015/mile (my valuation) so was slightly ahead. Better than just sending in the check IMO.
    Wouldn’t have done it had I not had cash to pay it off.

  5. I haven’t been able to figure out a strategy for paying my quarterly taxes on my current array of credit cards which puts me ahead of the game. It’s the one area of “spend” that I haven’t yet been able to exploit with cards. I am, however, planning to pay for a major kitchen remodel this summer on cards which will have huge benefits. So glad the IRS has not figured out a way to tax us on points and miles.

  6. Wouldn’t the points you earn on the fees offset the fees themselves? I don’t see how you could deduct the fees in that case, since I believe the IRS treats them as a rebate on the amount spent, and presumably the value you’re getting in cash back exceeds the amount spent on the fees.

  7. For federal taxes, debit card payments result in just a $2.59 flat fee, so its best to use a cashback or rewards debit card. Discover Cashback gives you 1% cashback on all spend (up to $3,000 spend a month). So paying a $3,000 tax bill results in $27.41 cash back, which beats everything you mentioned.

  8. @UA-Guy

    Excellent idea – I’m doing a $50k conversion this year, $50k next year and ~ the same the year after – I may pull the same trick with Chase Freedom Unlimited to pay the ~$12k/yr tax bill from that with that and then transfer points to CSR.

  9. Has anyone confirmed that you get the 1.5 MR back on the Amex Platinum Business card when used for taxes? It specifically excludes “cash equivalents”

  10. @ Chad — You do. This is not something that would be considered a cash equivalent — that’s stuff like reloadable pre-paid cards.

  11. Very basic question. The tax form is completed. X$ owed. Do you just go to one of these sites to pay x$? Have only paid very old fashioned way with check.

  12. @ Kate — Yep! It’s all tracked by your social security number, so be sure to enter that exactly as it is listed on your return (including having joint filers in the same order).

  13. Can you make a partial payment on credit card and send the rest by check? I am concerned about putting more than my small business portion of my taxes on my business credit card (the one I am still working on the minimum spend). How closely do banks look at your business card purchases to jake sure that you are not putting personal spend on them?

  14. @ carol — You certainly could, but just so you know the bank will see two line items for these transactions regardless of what IRS form you’re associating the payment with. One will say “US Treasury Tax Payment” and the other will say “[whatever company you use] IRS Service Fee”. It doesn’t specify whether it’s for a personal or business tax payment.

  15. I was just thinking, if this is such a good deal (it is), has anyone thought of putting extra amount so can get refund check from IRS by overpaying and get extra points/miles??

    I might try it

  16. Tiffany, I hate to correct you on this. However, the 35% points rebate for airfare is an equavalent of 1.538% return instead of the 1.35% you noted. This yields a value of 115.38 for those Amex points instead of $101.25! (Take 11538 points, subtract the 35% rebate of 4038 to get back to the original 7500 points)

    Hope this helps!

  17. @ david — I feel like maybe the IRS isn’t the best place to experiment with creative spending like that, personally, but if you’re paying estimated quarterly taxes per the voucher amount listed on your prior year tax returns, and end up having unexpected deductions such that you are owed a refund, those would be processed in the normal fashion.

  18. I had an interesting experience this year —

    Made two payments. The first with a VGC, that posted quickly to my IRS account with no issues.
    The second was with Amex Plat, and it never hit my IRS account. I emailed and called the payment company, who promised to follow-up, but it still never hit my account. I disputed the charge with Amex, and they immediately took it off my bill. I thought it might be a fight becuase the payment company might say they sent the money to the IRS and it was the IRS’ fault… but ultimately I bought the service of getting funds posted to my IRS account, and they did not deliver.

    So all ended OK… although I never got to actually pay my taxes with the card.

    I guess the moral is just track the IRS website to make sure the payments post to your account correctly. And don’t be afraid to dispute a charge if the merchant truly did not deliver and you tried to fix it in good faith.

  19. @Tiffany..no sense of adventure…

    I might try it by overpaying $500 to see what happens.

    I was thinking after I posted first time..SPG might be good card too, as you have a limit of 35,000 purchased miles each year…so by overpaying on SPG card..could buy miles at 1.87 cents which is a great deal

  20. Thank God these companies are not owned by Facebook. Or are they? I think there is still a good chance that your ssn is not tied to your sexy pics in the bikini and the family photos
    From last thanksgiving and the secret messages with your ex. Stay safe people.

    Can Facebook blackmail people LEGALLY?

  21. i must be stupid.
    Can’t for the life of me figure how any of these smart people think the tiny advantage in actual money is worth the trouble they are going thru.
    There must be better ways of making a buck (?)

  22. You are talking about quarterly 940 business taxes, what about 941 monthly taxes being paid this way?

  23. Loving the thread here guys. You rock Tiffany! The community Ben, you, et. al. have created really means something here. It’s awesome. Thanks for all you do.

  24. @Romeo: Because it takes less than 60 seconds and is less trouble than writing a check to the IRS.

  25. I’m confused… If you pay through the pay1040 and use paypal so that you get the Chase Freedom 5x bonus, aren’t you paying both the 1.87% fee for pay1040 and the 3% fee for using a credit card through paypal? In other words, you are paying a total of a bout 4.87% in fees to get the 5% bonus….Am I missing something?

  26. @ Martine — You as a consumer don’t pay that 3% fee for using PayPal when the merchant is using PayPal as a payment processor.

  27. Hi Tiffany, this article says you can’t pay 941 taxes with a cc, but doesn’t give any explanation. Couldn’t find clarification on IRS website either. Do you have any links to this subject matter that you can post?

  28. @ RG — Apparently you can’t (though I swear another commenter said they were doing it). The IRS page I linked to in the post says “Please note that you can’t use card or cash payment methods to make Federal Tax Deposits” and the 941 is technically a deposit, right?

  29. Thanks. Great post, i never knew. At 1.89%, that’s about the same price as AA purchase points on sale. Just paid my 2017 and 2018-ES 1st Qtr with 2 new Delta AmEx cards.
    Barcelona here we come …. !!

  30. I want to take advantage of the Chase Freedom 5% category via paypal but when I went to pay1040, they don’t seem to give me the option to pay via paypal. Help!

  31. @ Tiffany — Are you 100% positive that Amex Membership Rewards (and the 50% business platinum bonus) will be awarded for tax payments? I called Amex to verify my credit limit and while doing so figured I may as well confirm that I’d earn Membership Rewards points and the bonus. I expected the answer was going to be “yes”, but they said “definitely not” — no points and no bonus — and even the supervisor agreed.

    Are they somehow just wrong? It would be terrible to pay the credit card fees and get no points at all!

    Thanks so much,
    Todd

  32. @ SeattleTodd — Yes, there’s no reason why you wouldn’t get points, it processes just like any other purchase. Have done this dozens of times.

  33. @ Troy It doesn’t look like PayUSATax is one of the listed websites on Amex to which this particular promotion applies according to the link you included, so I don’t think you will get any extra points for using Amex Express Checkout to pay with them. Am I missing something?

  34. @Frank. Sorry for the such a delay in responding now probably mute but it does/did work, having used it myself yesterday. If you look at AMEX Express checkout it is still there (scroll down towards the bottom of https://www.americanexpress.com/us/content/express-checkout/ where the scrolling ones are and it will be in the middle). Then if you go to the site (
    (https://www.payusatax.com/) you will clearly see AMEX Express Checkout right side towards the bottom directly above “Did you know” tile

  35. @Troy. Thanks for pointing that out. I see it now. Curious that the “terms and conditions” only mentioned a few of the vendors by name and did not include PayUSA. I took your advice and went ahead and used Amex Express Checkout anyway, so we’ll see if the bonus points post. Thanks for the heads-up; I would have used Pay1040 otherwise.

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