April 12, 2018
How to Earn Miles & Points by Paying Taxes with Credit Cards
Tax day is fast approaching as millions of Americans eagerly line up to write checks to Uncle Sam. Luckily there’s a way to earn credit card miles & points while paying your taxes. I’ve wrote about this subject last year and wanted to bring it up again as a reminder.
Paying Taxes with Credit Cards
The IRS partners with three payment processors who facilitate credit card payments. They accept all major credit cards, including Visa, MasterCard, American Express, and Discover. You can make two payments per payment processor per tax cycle. For example, if you’re paying your annual 1040 taxes, you can charge two credit cards with each of the three processors, netting you a maximum of six credit card payments to the IRS. Also note that only federal taxes can be paid this way, not state taxes.
Credit Card Fees
Payment processors charge between 1.87%-1.99% for facilitating the payments. Those credit card fees may be deductible as itemized deductions (ask your accountant). Make sure to save your receipts if you plan on itemizing.
Is It Worth It?
Assuming you can pay your credit card bill in full without accruing interest charges, you need to compare the value of the points you receive against the cost of acquiring those points (the payment processing fee). Let’s assume your tax bill is $10,000 and you pay via Pay1040.com. You’ll end up paying $187 in fees (1.87%).
- The Chase Freedom Unlimited earns 1.5x Ultimate Rewards points per $1, netting you 15,000 UR points. You can easily get 5 cents per point when transferring those points to an airline partner and redeeming for Business Class. Those 15,000 points would get you $750 worth of travel.
That’s just one example. You’ll need to run the same analysis for any credit card you’re thinking of using. Paying your taxes online can also be a great tool to hit your credit card’s minimum spend requirements in order to earn a lucrative sign-up bonus.
Finally, paying your taxes online is tremendously useful for unlocking high-level credit card spending perks. For example, the United Club card offers a United Premier Qualifying Dollar waiver after spending $25,000 in a calendar year. The PQD waiver could be well worth the 1.87%-1.99% fee.
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