Did you know that you can earn points & miles when filing your taxes every year? This is an often overlooked aspect of earning valuable credit card rewards due to the fees involved. Below I’ll break down whether it’s worth it and the best-earning strategy to take!
A Basic Disclaimer – This is not legal advice. You should seek a Tax Attorney or CPA’s counsel for legal advice pertaining to filing your taxes.
Who should pay their taxes with a credit card?
The perfect candidate is someone who struggles with meeting the minimum spending requirement for a new credit card via their day-to-day purchases. In an ideal situation, a person could open one or more cards to pay their taxes every year. This person could then score a discounted vacation with the points & miles earned.
How do you pay your taxes with a credit card?
There are four different options available that will allow you to pay your taxes. The IRS is technically not allowed to collect fees on tax payments which brings in these various processing companies. There are three processing options plus Plastiq which all allow you to make these tax payments and earn points & miles.
PayUSATax.com – This is the best option which includes a 1.96% Credit Card fee.
Pay1040.com – This option is tied at the second-best option which includes a 1.99% Credit Card fee.
ACIPayments.com – This is the other second-best option which also includes a 1.99% Credit Card fee.
Plastiq – This is the last option due to the 2.85% credit card fee.
It’s important to note that all of the options above do accept credit cards from all of the major issuers like Visa, Master Card, etc.
Which cards should you not use to pay your taxes?
Any card that earns 2% or below in purchases does not make sense in this situation. Given the extra steps involved in using a credit card to pay a tax bill, it doesn’t make sense to break even or earn a nominal number of points & miles. For example, using a 2% credit card at PayUSATax (1.96%) to pay a $15,000 tax bill will result in earning $6 in cash back ($300 in cashback -$294 in fees = $6).
A small exception to the cards not to use would be for folks who are chasing a specific airline or hotel status. For example, if someone was only 25,000 points away from earning the Southwest Companion Pass. Essentially they could pay a $490 fee to earn buy-one-get-one-free flights.
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Which cards should you use to pay your taxes?
In my opinion, this is a prime opportunity to open a new credit card and use the tax payment to help meet the minimum spending requirement. Most credit card offers come with spending requirements between $3,000 and $5,000 dollars in order to earn the welcome bonus. Depending on the size of a tax bill, a person could easily open two to three new credit card offers every year.
Check out the Top Credit Cards of this Month here for some inspiration!
Business Owners
Depending on the size of your tax bill, you may be able to take advantage of this quarterly. Even better, despite the IRS accepting a maximum of two payments per quarter, it’s possible to use each one of the processors for a total of six payments per quarter. In most cases, the credit card fees for tax payments are also taxed deductible for businesses. Of course, check with your accountant about your specific tax situation. Be sure to check our Top Credit Cards list to find the best business cards available for a decent welcome bonus to get some cash back or points off of your taxes!
Basic Breakdown
I know a handful of people who only open credit cards around tax time every year in order to take advantage of the unique earning opportunity. Accounting for the credit card fees, most people are looking at around a 7-9% return on making their tax payment versus zero with a debit card or cash. For me, it’s another tool in my points & miles earning toolkit!
Let us know!
Have you paid your tax bill with a credit card? I’d love to hear from you down in the comments or over in the 4,700+ Member Basic Travel Facebook Group!
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