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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.
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.
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!
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38 Comments On "Is It Worth Paying 1.87% To Pay Your Taxes Via Credit Card?"
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Nice write up but too late for this year.
Great post. My question is why would you post it the last day to file taxes, it would have been a lot more beneficial a month or two ago?
why not just use the chase freedom which has a excellent point per dollar for this quarter?
* Bonus %10 on every dollar
* Bonus 10 points on every purchase
and that is on top of the point per dollar.
@ash:
@David:
The question was only posted on DDF yesterday, you should have asked a month ago 😉
Either way, still good for quarterly payments this whole year.
@man:
That earns 1.1 points per dollar, which is lower than the other options in this post.
You would get 22K points for a $20K payment, or a pricey 1.7 cents per point.
Bear in mind that the 10% bonus ends this year.
I just used SPG and feel good about it 🙂
What about if I use the United Presidential card?
Buy Vanilla Visa $500 card in CVS or Walgreens if you get multiple points per dollar on drug stores. IRS fee is only $2.49. 2 payments per provider, so no huge tax bills.
I’ve got some news:
The club card has the annual fee waived for the first year as an in-branch offer.
I’m sure you can do better than this, but I used my Fidelity Amex to pay my taxes. It’s a no-brainer when it costs 1.87% and you get a 2% rebate.
Citi double cash givers 2% flat. Easy math.
@Harry:
Then you would earn PQMs.
@al613:
They actually allow 2 payments per processor per quarter, so that can actually add up.
@Chaim:
Can always SM to get them to waive the fee as well.
@Jeremy:
@Citi:
Except that everything in this post earns more than 2% value.
Thanks Dan for reminding me to pay. I thought I still have lots of time. Paying on time saves a lot more than all this shtick!
I would only go to Cleveland to see LeBron lose.
At least for now, you can get 1.5 miles per dollar for everyday spend with the US Airways Dividend Miles MC, assuming you signed up for the 50% bonus. But you can avoid the processing fee altogether with clever use of the Redbird.
@dan The ‘discover it miles’ card earns 3% cashback on all purchases the first year that u have the card (no signup bouns – no annual fee)
Cash is king. Not “value”. The mint never came out and downgraded cash. Rewards programs downgrade consistently. Unless you need a suite on Singapore airlines last minute cashback earning 2% with no annual fee is the way to go.
Or you can use capital one spark business card which gives you 2% cash back. You end up making money on the deal
..
@hershel:
Did you read the post?
@Citi:
The mint may never come out and devalue things in a day, but if you sit on cash it’s devalued every day.
A dollar is worth a third in 2015 of what it was worth in 1980. Of course you could invest that dollar, but it’s still constantly being devalued.
Point of the matter is this, with a 2% card your margin is 0.13%.
On a $20K tax bill you’ve made a whopping $26 profit.
At least from my perspective the first class bed to Hawaii is the more appealing option. Sure I might not pay the $2K asking price for the seat, but I’ll be sure to enjoy it when I’m there on my miles.
@sam:
Or you can make a lot more than 2% with 1.5 miles per dollar. Sky is the limit, but just about everything will beat 2% when earning 1.5 airline miles per dollar.
Or you can get 3% with the discover miles card for the first year.
Or you can get 2.22% with Barclay Arrival.
@yy: Redbird has a limit of $5k a month to load on it. The whole amount can be just transferred to your bank. Anyway to go over $5k for taxes?
@Dan: Also, Gift card Mall sells $1k Visa that should be treated like debit. Its a way to reduce total fee below 1%, but doubt there is a category bonus with them.
Dan, airlines DO devaluate programs in one day. American Airlines on “saver awards” to Europe jumped from 20k to 30k without any prior notice!
@Achshell:
I’m well aware that airline do devalue in a day, because they don’t have the ability to deflate the value of miles on a daily basis as the fed strives to do with dollars.
The affect of either is the same. In fact the domestic 25K ticket hasn’t changed in decades despite ticket prices being significantly more in inflated dollars than they were. And we have BA domestic awards from 9K (7K with an AMEX bonus).
That being said, AA made no such devaluation. They still have 20K off-peak awards to Europe just as they have had for years.
Anyone investing their cashback over the last five years has done significantly better than spending mileage. Over a lifetime once you include compounding and adjusting for inflation 2% cashback easily converts to 7% cashback-on everything.
Isn’t the obvious best way just getting a signup bonus?
It’s impossible for the $374 fee to be tax-deductible.
@al613: You can do more than $5000/month by having multiple family members with Redbirds, or you can spread your spending over several months. Most people don’t have huge tax bills to pay in April. Withholding and estimated tax take care of that.
http://www.irs.gov/uac/Credit-and-Debit-Card-Fees-Related-to-Tax-Payment-are-Deductible
U can use a 0% apr cc and pay over time.
In short, signup for amex everyday with my link, ok I did that.
You claim I can book a lie flat from ewr to hnl with krisflyer? Show me some saver availability?
Also you forgot to mention the YQ for a Sq suite
@Citi:
Assuming they never spend any money on travel. If they travel at all your argument goes to shreds.
@Chaim:
Yes, that’s how I started the post.
@Nein:
A business may be able to deduct, like I said, speak to your accountant.
@yy:
REDcard can be cashed out with ease, what does that have to do with taxes?
@Tt:
True, though on a consumer card that can hurt your score.
@honestly:
There is plenty of availability, I just booked several EWR-HNL business awards myself.
Next winter in fact it’s wide open, but close-in availability is very good too.
There is no YQ for travel on United. For the SQ suite FRA-JFK it’s $175, a fairly nominal YQ as far as those things go for one of the best experiences in the sky.
I took the 2% to offset the convenience fee.
I was just happy to use the online payment so I could pay on time.
Thanks Dan. I just recommended to my parents this week they pay with United Club and they did so yesterday.
Now I can reference Dan the expert for proof it was a good decision!
The Mint actually did devalue by 57% in one day.
1933 they had everyone turn in gold for $20 an ounce & then in one day arbitrarily made it $35 an ounce.
Other than the hassle, why not buy $500 gift cards, use them to buy Money orders and pay with money orders. I did that for my State taxes and it came to about 1.25% including gift card and money order fees.
Anyone think the IRS would mind getting a stack of $1000 money orders for quarterly taxes?
@Avi: buying money orders, unless you have a local friendly store, is a hassle.
@yy: i realize that you can manage more then 1 redbird. How paying the taxes is better then just to transfer the funds to your checking account?
@Anonymous: by chase they are saying that u can’t
@yy: I used this card to pay my taxes after signing up for the 1.5 mi per dollar deal….but I have no idea what the “Redbird” is that you referred to in your post. Could you explain, please?