April 14, 2017
Earn Thousands of Airline Miles While Paying Your Taxes

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Here’s the bad news-tax day is right around the corner and you’ll soon have to pay up. Here’s the good news-you can earn tons of miles and points by paying your taxes. Let’s start with the usual disclaimer, it’s never a good idea to finance your taxes or any expense on a credit card. The interest you’ll have to pay the credit card company will outweigh the value of the points you earn pretty much every time. However, if you can pay your tax obligations with a credit card and then just pay off the credit card statement before being charged interest, you’ll earn tons of credit card points.

 

Paying Taxes with Credit Cards

The IRS partners with three payment processors who facilitate credit card payments to the IRS. 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

The payment processors charge a fee ranging from 1.87%-2% for facilitating the payments. There is a silver lining to this though. Those credit card fees are tax deductible as itemized deductions. If you do end up paying your taxes with credit cards, make sure to show the receipts to your accountant to get the proper deductions.

 

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). Here’s how the cost structure would breakdown if you charged $10,000 to a couple sample credit cards:

 

Barclaycard Arrival Plus

This card earns a flat 2X miles per $1 on all purchases and lets you redeem miles for 1 cent per mile.


  • Earn: $10,000 x 2=20,000 miles
  • Cost=$10,000 x 1.87%=$187

Since you can redeem those 20,000 miles for $200 worth of travel credits (not including the 5% mile rebate this card offers), and your cost is $187, you’ve just come out ahead $13.

 

United Club Card

This card earns 1.5X United miles per $1 on all purchases. There are tons of ways to redeem United miles. For example, you could redeem 110,000 United miles to fly on a Lufthansa First Class ticket worth $9,500! A redemption like that would net you 8.6 cents in value per point!


  • Earn: $10,000 x 1.5=15,000 United miles
  • Cost=$10,000 x 1.87%=$187

Assuming you can use those 15,000 miles towards first class partner awards (think Lufthansa, ANA, Asiana) at a rate of 8.5 cents per mile, the miles would be worth $1,275, and your cost to acquire them was just $187!

 

Other great credit card options for this are the Starwood Preferred Guest from American Express and the Chase Freedom Unlimited.

 

If you use the right credit card to pay your taxes online, you can earn thousands of valuable miles to use on first class travel or free hotel nights. This is also a great tool for meeting credit card spending requirements. The best credit cards often require several thousands dollars in spending in the first three months to get a massive sign-up bonus. Since you have to pay your taxes anyway, this is a convenient shortcut for getting a great sign-up bonus in the process 😉 Finally I just want to reiterate again, if you can’t pay off your credit card balance in full, this is not a good idea. The interest payments you’d have to make will wipe out the entire benefit you receive from earning the extra miles.


Featured Image Courtesy of Getty Images

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