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“Pinay” joined the DansDeals Forums to ask which credit card he should use to pay his taxes.
The IRS website lists several processors that charge 1.87% to process your tax payment via credit card.
If you are trying to reach a spend threshold that you won’t be able to reach it without some help, then it will almost always make sense to pay 1.87% to get the signup miles.
But what about if you don’t have any spend thresholds to meet?
-The United Club card earns 1.5 United miles per dollar spent. If you owe $20,000 in taxes and pay for it on your United Club card you’ll pay $374 and you’ll get 30,561 miles. That’s like buying miles for 1.22 cents each.
That $374 fee may be tax-deductible, you should speak to your tax preparer about that.
Is it worth it? It all depends on what you do with your miles.
A round-trip ticket from LaGuardia to Cleveland with a one-night stay to see LeBron try to bring a championship to a city that hasn’t seen one in 51 years would run you $1,100. That same ticket would be 20,000 United miles round-trip, a value of 5.5 cents per mile.
Yes, there are other cards that earn 1.5 or 2 “miles” per dollar, but if they’re not airline miles they’re likely only worth 1 cent towards travel. You would need 110,000 Capital One “miles” for that same LGA-CLE flight that costs 20,000 United miles.
The value is much greater if you fly business or first class internationally, but the value on a round-trip ticket from NYC to Fort Lauderdale will be much less.
There are much cheaper ways of manufacturing spend to buy miles for much less than 1.246 cents each, but considering that this takes zero effort, it’s not a bad deal.
Of course you need to have the United Club card which carries a steep $395 annual fee. It has benefits besides for 1.5 miles per dollar spent, like club membership and waived expedite fees, but it’s still a pricey card.
-If you have the more affordable United Explorer card you get just 1 mile per dollar, but that card gives a 10K mile bonus for spending $25K in a year. To signup for credit card offers like this you can click here or on the “other credit cards” tab on top of the DansDeals logo banner to view links for all other card offers. After clicking on “Travel, Airline, and Hotel credit cards” just scroll through the pages until you find the card offer that you’re looking for.
Pay $25K to the IRS on the United Explorer card and you’ll get 35,468 miles for a $467.50 fee. That’s like buying miles for 1.32 cents each.
Both United cards give access to expanded saver award availability, priority boarding, and keep your miles from expiring for as long as you’re a cardholder.
–The Amex EveryDay Preferred Credit Card offers 1.5 points per dollar everywhere if you have 30 total transactions that billing period. It and the United Club card are the only cards that give 1.5 real airline miles per dollar spent everywhere without limits. With an annual fee that is $300 less than the United Club, it brings lots of mileage earning potential to the masses.
If you do pay your taxes on this card you’ll want to make sure that you have 30 transactions that month. In this post I wrote about an easy way to get up to 30 transactions if you need some help in that department. The card also offers up to 4.5 points per dollar in categories like groceries, gas, and Uber.
If you owe $20,000 in taxes and pay for it on your Everyday Preferred card you’ll pay $374 and you’ll get 30,561 miles. That’s like buying miles for 1.222 cents each.
Those points can transfer to airlines like Air Canada, British Airways, Delta, El Al, Flying Blue, and Singapore.
Earlier this year there was a 40% bonus transfer for British Airways. With each dollar spent earning 1.5 points and multiplying that by 40% means that the effective earning was 2.1 points per dollar everywhere. Assuming you transfer with a similar bonus, that’s like buying Avios for 0.87 cents each.
That same LaGuardia-Cleveland flight costs just 9,000 Avios round-trip, a value of 12.2 cents per Avios. Your cost would have been $78 for the round-trip award.
A first class ticket on a United lie-flat bed one-way from Newark or Washington DC nonstop to Honolulu can be booked with 30K Singapore miles instead of 40K United miles. Either are an excellent value for your miles on a ticket that would otherwise cost thousands of dollars.
57.3K AMEX points transferred to Singapore is enough for a private suite on an A380 one-way from JFK to Frankfurt. Double the miles and fly together with someone special in a couple’s suite across the pond.
–The Amex EveryDay Credit Card is the only no-annual fee card that can transfer points into airline miles. It offers 1.2 miles per dollar spent. If you owe $20,000 in taxes and pay for it on your Everyday card you’ll pay $374 and you’ll get 24,449 miles. That’s like buying miles for 1.53 cents each.
-The Starwood Consumer AMEX and the Starwood Business AMEX have the ability to transfer points into dozens of different airlines (Alaska and American are 2 unique SPG transfer partners) at a 20K:25K ratio, effectively 1.25 miles per dollar spent everywhere. If you owe $20,000 in taxes and pay for it on your Starwood card you’ll pay $374 and you’ll get 20,374 Starpoints which can be transferred into 25,374 miles. That’s like buying miles for 1.47 cents each.
80K Starpoints transfers into 100K Alaska miles. 90K Alaska miles is enough to fly one-way to the Maldives on Emirates first class, where you’ll be able to rest in a suite and have a shower at 35K feet in the sky on an A380. Or I suppose you could redeem 1.5 million Capital One points for the same experience if you’d like…
60K Starpoints transfers into 75K American miles. 67.5K AA miles is enough to fly one-way to Asia on Cathay Pacific’s award winning first class that would otherwise set you back $15,000.
-The American Express® Premier Rewards Gold Card is still offering a 15K bonus for spending $30K in 2015. If you spend exactly $30K in 2015 than those numbers will look similar to the calculatios for the Everyday Preferred card with its 50% bonus.
-The Discover it Miles card gives 3 “miles” per dollar everywhere for the first year that you have the card. They’re worth 1 cent each, so you’ll come out 1.13% ahead of the 1.87% tax processing fee. To signup for credit card offers like this you can click here or on the “other credit cards” tab on top of the DansDeals logo banner to view links for all other card offers. After clicking on “Travel, Airline, and Hotel credit cards” just scroll through the pages until you find the card offer that you’re looking for.
If you have any mileage earning debit cards, those can also be great for tax payments.
Of course you don’t have to wait for April 15th to come around to pay your taxes, you can make quarterly estimates at any time. If you pay too much you can get a cash refund from the IRS, the refund doesn’t go back to your credit card.
Do you pay your taxes with a credit or debit card? Or is it too pricey of a method to buy miles? Sound off in the comments!