Is It Worth Paying 1.87% To Pay Your Taxes Via Credit Card?

41

Update: Tax day is on 4/18 this year. Will you use a credit card to pay your taxes?

Originally posted on 1/22/17:

On the IRS website you can find a processor that charges 1.87% to process your tax payment via credit card.

It can definitely make sense to pay your taxes via credit card if you are signing up for a card and are trying to reach a spend threshold that you won’t be able to reach without some help.

But what about if you don’t have any spend thresholds to meet?

-If you pay at least $5,000 in taxes on your AMEX Business Platinum card you’ll earn 1.5 points per dollar spent. Those points are “hybrid” points. You can transfer them into real airline miles from any alliance. Or you can redeem them for paid travel. Thanks to the 50% points rebate those points will be worth at least 2% each, meaning you’ll be earning at least 3% back for the spending.

The $5,000 tax payment will cost you $93.50, but you will earn 7,641 points worth at least $152.82.

That tax payment fee may be tax-deductible, you should speak to your tax preparer about that. If you can deduct the fee that changes the math based on your marginal tax rate.

You can also request a refund for any overpayment when you file your taxes and the IRS will cut cut you a check or a direct deposit into your checking account.

The Amex EveryDay Preferred Credit Card offers 1.5 points per dollar everywhere if you have 30 total transactions that billing period. The card also offers up to 4.5 points per dollar in categories like groceries, gas, and Uber. A $5,000 tax payment will cost you $93.50, but you will earn 7,641 points transferable to airline miles. If you have a Business Platinum card you can also use them with the 50% points rebate on paid airfare.

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. A $5,000 tax payment will cost you $93.50, but you will earn 6,112 points transferable to airline miles.  If you have a Business Platinum card you can also use them with the 50% points rebate on paid airfare.

-The Chase Freedom Unlimited card earns 1.5 Chase Ultimate Rewards points per dollar spent. If you have a Sapphire Preferred/Reserve or Ink Bold/Plus/Preferred you can transfer those points into airline miles or hotel points. If you have a Sapphire Reserve you can also redeem those points for 1.5 cents each towards travel. A $5,000 tax payment will cost you $93.50, but you will earn 7,641 points transferable to airline miles if you or an additional user have one of the aforementioned card or useable for $114.62 towards travel with a Sapphire Reserve.

-The Starwood Consumer AMEX and the Starwood Business AMEX have the ability to transfer points into dozens of different airlines 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. If you spend $30K/year you qualify for SPG and Marriott Gold status.

-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.

-The Barclaycard Arrival Plus gives 2 points per dollar plus a 5% rebate on redemptions, so you’ll come out .18% ahead of the 1.87% tax processing fee.

-The Citi Double Cash card gives 2% cash back, so you’ll come out .13% ahead of the 1.87% tax processing fee.

Other cards offer benefits for hitting annual spend thresholds.

-The JetBlue Plus World Elite Mastercard offers mosaic status for spending $50K annually. Mosaic status includes free changes and cancellations on JetBlue tickets for the Mosaic member and for everyone on their itinerary, 2 free checked bags, 15K bonus points for earning Mosaic status every year, free even more speed checkin and security access, early boarding, 3 additional points per dollar spent, free alcoholic beverages onboard, and a dedicated Mosaic 24/7 customer service line.

-The Delta Platinum and Reserve consumer cards and Delta Platinum and Reserve business cards offer elite qualifying miles for meeting annual spend thresholds. If you spend $25K/year you’ll also waive the requirement to spend a minimum amount on Delta flights to earn elite status.

-Spending $25K/year on the United Explorer card earns 10K bonus miles and waives the requirement to spend a minimum amount on United flights to earn Silver, Gold, or Platinum elite status. The United Club card offers 1.5 miles per dollar everywhere. 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.

-Lots of other cards have threshold bonuses. The Chase Hyatt card gives elite night credits if you spend $20K or $40K, though that ends in February. The Chase Ritz Carlton card gives Marriott and SPG Gold status for spend $10K/year and Platinum status for spending $75K/year. The Chase Marriott gives an elite credit for every $3,000 spent. The AMEX Hilton and Citi Hilton cards award Gold status for spending $20K/yead and the AMEX Hilton Surpass and Citi Hilton Reserve award diamond status for spending $40K/year. The Citi Hilton Reserve also gives a free hotel night for spending $10K/year. The Chase Southwest cards give companion pass status if you earn 110K points in a year. The Chase Fairmont gives a free night for $12K/year. The Citi AA Executive card awards 10K elite qualifying miles for spending $40K/year. My grandfathered Ink Bold Exclusives card gives 167,500 miles if you spend $100K/year, etc, etc.

Is it worth it? It all depends on what you do with your miles.

The value of airline miles is huge if you fly last-minute, one-way, or in business or first class internationally.

When I fly from Akron or Cleveland to NYC on a last-minute ticket it cost just 15K Avios instead of $1,200 round-trip.

76K points transferred to Singapore is enough for a ticket in a private couples suite on an A380 one-way from JFK to Frankfurt with no fuel surcharges.

With hybrid points you can always get a great value by using the points directly for paid tickets or you can transfer them into airline miles so that you are always be a step ahead of the airline’s game. Transfer points when outsized award values are available or redeem directly for paid flights when they are not.

Of course there are much cheaper ways of manufacturing spend to buy miles for less, but considering that this takes zero effort, it’s not a bad deal.

You can make 2 payments per credit card processor for each quarterly estimate or for your year end bill. You can make another 2 payments each time by using a spouses name to pay.

You can also pay with a debit card for a $2.25 or $2.59 flat fee in case you have a mileage earning debit card or gift cards to cash out.

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!

Leave a Reply

41 Comments on "Is It Worth Paying 1.87% To Pay Your Taxes Via Credit Card?"

Notify of
Sort by:   newest | oldest
Mo K

Dan, you didn’t mention using the blue for business which is getting 2.3 points per $ at current sign up bonus

Anonymous

Are you able to split your payments across different cards?

Dan

@Mo K:
Meant to include that, added now, thanks.

@Anonymous:
You need to make an additional payment to use another card.

Chaim

Can i make a “payment” that i dont owe, thereby generating a refund when i file?

YOSEF

this will help taxes feel less painful.

Dan- do you know if you can pay with multiple cards?

Dan

@Chaim:
Yes.

@YOSEF:
You can make multiple payments, read the post.

J

Thank you Dan, just to clarify, The terms for “Amex Blue for Business” says 2 points first year, where do you see 2.3?

Mo

Citi Double Cash pays 2% which also put you ahead (especially for those of us who aren’t big travelers and don’t use points frequently)

Evan

The Amex Blue for Business fine print says: Purchases made through third-parties (including resellers and online marketplaces) or through a third-party payment account will not receive additional points. Any chance the tax payment processors would be considered third party and thus not be eligible for double rewards offer on first 50k?

Steve

@Mo:
I’m surprised Dan didn’t mention this. I pay my taxes on my citi and make $ doing.so 😃

Yoko

Is there a way to get Platinum status with SPG via spending on any card?

Max

dan, what’s your card of choice for large purchases of $5k and up?

Jay

Dan, I appreciate your intent, but I believe you are doing us a great disservice by valuing Amex Biz Plat points at a 2 cent minimum. If you don’t transfer to frequent flyer programs, these points are worth a MAXIMUM of 2 cents, I am sure you know what I mean.

Dan

@J:
There’s a 30% annual points dividend.

@Mo:
It does, though there are better options.
I’ve added it.

@Evan:
Should be fine.

@Yoko:
Yes, Marriott or Ritz Carlton.

@Max:
Biz Plat/Freedom Unlimited/Everyday Preferred all earn 1.5.
Blue Business in the first year earn 2.3.

@Jay:
No, insider fares can make it 2.5.

dan1

dan or anyone, if don’t expect owing taxes, any suggestion about when should we pay / overpay taxes so that IRS’s refund would be close to the CC’s payment?

dan1

@dan1: if min spend for CC bonus is not needed before or by 4/15, i can prepay anytime in april before filing taxes by the 15th?

Duvid

What exactly are insider fares?

Yoko

@Dan:
How much do I need to spend on the Marriott card to get Platinum and can the points be transferred back to SPG?

Jake

Serious question, you only mentioned paying smaller tax bills 5 to 10k. Now what about if someone had a much larger end of year bill, say between 100k-500k? Do the rewards at higher levels ever seriously out way the cost (providing one would have such a high credit limit too)

Thoughts and advice would be appreciated.

Dan

@dan1:
Yes.

@Duvid:
E.G.
http://www.dansdeals.com/archives/100010
http://www.dansdeals.com/archives/96528

@Yoko:
The post states the amount.
If you have Marriott Platinum you can match it to SPG Platinum. Points transfer back and forth at a 3:1 ratio from Marriott to Starwood and v/v.

@Jake:
Of course, the math stays the same, it only makes it more lucrative at higher levels.

Duvid

Do i have to do anything to access those fares or that’s what they automatically offer you

yy

If you have the BBVA NBA card (no longer available) and you time it right, you can get 5%.

Mh

Fee is subject to 2% limitation.

I wwould also be very a little careful about making a $15,000 payment and then preparing a tax return getting most of it back as a refund.

Moshe

@Dan:
Southwest is offering a bonus of 1000 points if you file taxes through them. Is that deal any good?

Yoko

From the post –
“The Chase Marriott gives an elite credit for every $3,000 spent.”

Where does it say how much you need to spend to get platinum? Or, how many elite credits do you need for platinum?

Cham

Is the Its payment considered a purchase or a cash advance?

Dan

@Duvid:
Automatic.
You might be able to call for lower rates as well.

@Yoko:
https://www.marriott.com/marriott-rewards/member-benefits.mi

@Cham:
Purchase.

Shonuffharlem

@Mh: I don’t know why you have to be warry about that tons of offer pepper make huge estimated payments and get huge refunds. What if your last year you paid fifty k in taxes so you make fifty five K in estimated tax payments and you find out at tax time your mutual funds passed through losses as well as you took it some stock tax losses end of year and have zeroed on come? You put in 55k and get 55 refund. Who cares?

Dave

Can you spend your way to spg plat with Starwood cc

SPG

Hi Dan, could you please remind the spending requirements for resent SPG consumer card offer of 35,000 Starpoints. I got approved but didn’t save the offer :(

Michal

Not sure if here is the right place to post..
Trying to figure out if I can get an extension to pay my taxes.
And if it’s ok to pay taxes now and file them later.

Tax3s

People here pay taxes?

Shaul

@Michal: Generally speaking, you can get an extension for 6 months to file, but not an extension to pay.

Jay Weiss

If you overpay via credit card, and then get a refund, do they credit your card or mail you a check?

Danr

I upgraded Amex green biz to platinum and got 50k MR points for upgrade made tax payment of 10k for the spending requirement. A nice haul of 65k no credit pull +$200 airfare reimbursement

B

Alliant Credit Union has a 3% card for one year (year 2 is 2.5%), which should be helpful

http://www.alliantcreditunion.org/bank/visa-signature-card

Steibe

Hi Dan – I owe $55k in Federal Taxes and around $10k in CA State Taxes. I’m considering paying just the $55k in Federal Taxes on my Amex Biz Platinum due to there not being a credit limit on that card and the fee only being 1.87%. I also have the Chase Freedom Unlimited, which only has a $10k credit line, and the Capital One Spark Biz, which has a $20k credit line.
I know that I could divide this $55k up between 2 cards and with the Amex Biz Platinum pay $1,028.50 in fees in order to get 82.5k Membership Rewards points.. My question is, do you think this is a sound idea to use the Amex Biz Platinum to pay the full $55k, or does it make more sense to use my Chase Freedom Unlimited to pay the $10k and then send the rest by check?
Any info would be greatly appreciated – Thanks!

Anonymous

@Jay Weiss: Mail you a check

Pearl

What about getting to a Southwest companion pass? Would this be worth it?

Stacy

-The Discover it Miles card gives 3 “miles” per dollar everywhere for the first year that you have the card.

How?

They have a cashback match but its still on 1% unless you are assuming a combination of 5% categories and 1%

Jake

I spend 3 million per year on cc,

Currently i use chase ink. Amex cards would be to much of a pain for my business. As i need them to be universally accepted. What card should I be using if I wanted to get status out of this. From this article I read that I can get Hilton status is there is anything else?

wpDiscuz