Pay Taxes With Credit Cards
We’re in the heart of tax season, and who doesn’t love that? For Amex fans, don’t we all love the 1099’s on referral bonuses? Before you throw tomatoes at me, tax season isn’t all bad. It can be a great time of year to earn lucrative rewards from credit card spend. Hobbyists have several options for paying taxes and earning buckets of points. Today, I’m focusing on when it makes sense to pay taxes with credit cards outside of a welcome offer. I’m describing the primary companies which accept tax payments, why using credit cards can make sense, and present several viable options.
Update 4/18/22: Taxes are due today. If you owe and have a card with a welcome offer or spending offer then get it done!
How to Pay Taxes with Credit Cards
Let’s review which payment processors allow federal tax payments via credit and debit cards. Here are the main payment processors you can use:
- ACI Payments (link to payment screen)
- Pay1040 (link to payment screen)
- payUSAtax (link to payment screen)
These three payment processors are the primary options accepted by the IRS. Depending on your state of residence, you may be able to use these processors for any state taxes you owe, as well. For traditional taxpayers who may owe taxes only annually in conjunction with their returns, I recommend you review each option and pick the one where you’re most comfortable. Some individuals, self-employed and otherwise, pay federal and state estimated taxes throughout the year (called estimates). In general, filers can make up to two payments per processor per estimated payment period. For what it’s worth, I’ve used each of the above payment processors and had satisfactory experiences with all of them.
How Much Does It Cost To Pay Your Taxes With A Credit Card?
But what about the fees? How much does it cost to use each payment processor. Here are the fees charged by each. If you are only making one payment then Pay1040 looks to be the best option in terms of cost. If you are trying to spread payments across all of the processors by using Visa gift cards etc. then the fees are pretty much the same for each.
- ACI Payments – 1.98% credit card processing fee
- Pay1040 – 1.87% credit card processing fee
- payUSAtax – 1.96% credit card processing
Why Pay Taxes with Your Credit Card Instead Of Your Debit Card?
What first may jump out to you about the payment processors is that it can be relatively cheaper to pay with a debit card than a credit card. Unfortunately, most traditional debit cards don’t generally earn rewards. Credit cards do, though! And many have the best of both worlds by paying taxes with a Visa or Mastercard gift card they purchased with a high points-earning credit card. Others may prefer to pay using a credit card in the welcome offer period to earn a lucrative haul of points. So why would anyone consider using a credit card outside of a welcome offer period to pay taxes? Here are just a few reasons.
- The taxpayer doesn’t want to mess with buying Visa or Mastercard gift cards with a credit card.
- Based on the amount of taxes owed, using a gift card to pay taxes is impractical.
- A taxpayer can’t be approved for a credit card welcome offer in time to pay taxes.
With that said, paying taxes with an additional ~2% credit card fee must be done carefully if one wants to come out ahead with rewards. I’ll now cover a few credit cards where many will win out on the rewards end.
Use Credit Cards That Have Big Spend Bonuses
Certain cards offer big spend bonuses when you meet certain spend thresholds annually in addition to normal rewards earning on spend. Here are a few options which may make sense depending on your situation.
Amex Hilton Surpass/Business: Earn a free night certificate with $15k spend. Business cardholders earn an additional free night with $60k spend.
US Bank Radisson Rewards Premier/Business: Earn a free night e-cert (domestic properties only) with each $10k spend, up to $30k annually. (Not currently available to new applicants.)
Chase Southwest Cards (Plus, Premier, Business): Earn the Companion Pass when you earn 125k total points in a calendar year.
Barclays JetBlue Plus/Business: Earn Mosaic status and 15k points with $50k annual spend.
Amex Delta Platinum/Platinum Business: Earn 10k MQM with $25k spend, and additional 10k MQM with $25k more spend ($50k total).
Amex Delta Reserve/Reserve Business: Earn 15k MQM with $30k spend, and additional 15k MQM each time when you hit $60k, $90k, and $120k total spend.
Cards With Cash Back and Transferrable Currencies
Here are some cards where it could make sense to pay taxes on. The earnings from these cards will generally outweigh the cost so that you come ahead ahead on the transaction. You do not want to make your IRS payment with a card that doesn’t outperform the fee they are charging.
Cardmembers earn 1.5% cash back on all spending, plus an additional 1.5% cash back match at the end of the first cardmember year. Incorporating the credit card fees from tax payment processors, that’s an easy net 1% cash back. Perhaps the first cardmember year match is technically a “welcome offer.” Regardless, I want to note this option primarily due to its extended 3% cash back timeframe, relative to the general three month welcome offer period.
Citi Double Cash
Of course, the Double Cash has been historically considered a 2% cash back card. But for Premier cardholders, the Double Cash is a true 2x ThankYou points everywhere card transferrable to travel partners. Those who have specific, high value redemptions available may want to consider paying taxes with the Double Cash. Citi has increasingly better travel partner transfer options, my favorite being Choice Hotels at a 1:2 rate. The Double Cash is essentially a 4x Choice points everywhere card.
Again, I’d primarily recommend the Double Cash for tax payments for definite redemptions at greater than one cent per point values. Worst case, if your plans or needs change, you can cash out at 2% cash back, and your rewards cover the credit card fee.
Chase fans who hold a Sapphire Preferred, Reserve, or Ink Preferred and can find outsize value with travel partners may find earning 1.5x Ultimate Rewards worth the 2% fee. Also, Reserve holders who take advantage of Pay Yourself Back can cash out at 2.25% cash back as a contingency.
Amex Membership Rewards lovers who don’t otherwise hit the $50k limit for this 2x everywhere card and enjoy high value redemptions with travel partners can easily justify the 2% fee. And no additional premium card is necessary to do so, unlike Chase and Citi. But if you also hold the Schwab Platinum, you can alternatively cash out at 2.2%.
The math renders this card tougher to justify paying with, but if your tax bill is over $5k and you highly value Membership Rewards, paying with the Business Platinum may be a worthy move. Such cardholders will earn 1.5x on the charge.
How To Pay Taxes With Credit Cards: Conclusion
As a longtime taxpayer with Visa gift cards, I’m surprised how many credit cards may make sense for tax payments. Regardless of which tax payment method you pick, crunch the numbers first to determine which is the optimal move for you. I’m interested to see what future cards may fit well here. Our hobby can make paying taxes a little less painful and a bit more rewarding. I feel like we can all get behind that. What’s your favorite method to pay taxes with credit cards?