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!