It’s tax season—that time of year when some people scramble to file early in hopes of a refund, while the rest of us procrastinate, dreading the final bill. In the past, paying the IRS meant writing a check and making sure it was postmarked by Tax Day (April 15th, or later if it falls on a weekend or holiday). But with e-filing now the norm, most people enter their banking details and let the IRS withdraw the amount owed—an easy, fee-free option.
However, as someone always looking for ways to earn extra points and miles, I was intrigued to learn that you can pay your taxes with a credit card. But, of course, there’s a catch.
Let me start by saying that I’m assuming that you have the money to pay your tax bill and the only reason you’d be using a credit card is to earn the points and miles. If you don’t have the money and you’re going to be carrying a balance and paying interest, there are other options available that will cost less than the value of the miles or points you’d potentially earn.
How to Pay Taxes with a Credit Card
The Internal Revenue Service doesn’t directly accept payments with credit or debit cards. You’ll need to use a third-party service to make the payment and those companies want to make some money for their trouble.
The IRS lists the companies they deal with to process these payments on their website. Pay1040.com has the lowest rates for credit cards at 1.75% of the payment amount, with a minimum fee of $2.50.
Avoid Paying Through Your Tax Software
PLEASE NOTE: If you e-file, you will be offered to pay with a credit or debit card from within the tax preparation software. DON’T DO IT!! These fees are always more expensive than paying directly through the payment websites. Here are the fees if you pay from within the tax prep program.
Is It Safe to Use an External Website?
I know that going to some external website to pay a large tax bill may seem sketchy and could make you doubt if your payment will ever be received. I’ve used Pay1040 several times with no issues. Just stick to the places listed on the IRS website and you’ll be fine.
Alternative Payment Method: Plastiq
I’ve heard about paying taxes through Plastiq as another possible method. While this is true, they charge a flat 2.9% fee for all payments. Unless you have fee-free payments (earned with referrals), this is a more expensive option and you can do better with the websites above. It’s not that Plastiq doesn’t have a place in earning miles and points; it’s just not here.
Should You Pay Taxes with a Credit Card?
Now that you know how to pay your taxes online with a credit card, should you? My answer is a qualified maybe. It’s a Your Mileage May Vary decision, whether the points you earn will be worth more than the money you spend. Any time you take on an extra expense to earn (more) miles, you are, in essence, BUYING those miles with cash. In this example, you’ll buy the miles or points with the 1.75% extra fee you’ll need to pay to use a credit card.
When It DOES Make Sense to Pay Taxes with a Credit Card
It makes the most sense to pay your taxes with a credit card when you’re going to earn a large credit card sign up bonus with the spending.
My current referral link for the Chase Sapphire Preferred card will give you 60,000 Ultimate Rewards points if you spend $4,000 in the first three months of card membership (and I’ll get a kickback if you sign up for it with my link).
If you pay 1.75% on that $4,000 of spending, that’s an expenditure of $70. You’ll earn 60,000 Ultimate Rewards points for meeting the spending requirement. If you redeem that for travel through the Chase Travel, it’s worth $750. That’s over 10x the amount you paid to earn those points. If you transfer those points to a travel partner, like Hyatt, you may be able to redeem them for a stay worth over 2.5 cents per point. That means your bonus would be worth $1,500, just for paying $70 in fees on your taxes.
So it’s pretty obvious that if you need to make a tax payment anyway, it would be advantageous to have a credit card with a large sign-up bonus that you need to meet. That’s the best way to get value from having to pay the service fee.
When It MAY Make Sense to Pay Taxes with a Credit Card
There are other cards where you can spend $30,000 and get a companion ticket on British Airways or spend $75,000 in a year on an AMEX Platinum card to get two guests into the Centurion Lounge and unlimited Delta Sky Club access. If this interests you, there are better sites for you to learn how to do this instead of from me since I don’t spend $250K on cards in a year. 🙂
If you spend $15,000 on the World of Hyatt card, you’ll get an additional free night at a category 1-4 hotel. Considering the $280 in fees you’ll be paying, I don’t think that’s a great return on your money but if you’re close to the spending threshold and this will put you over the edge, it may make sense to go for it.
When It MIGHT Make Sense to Use a Credit Card for Taxes
If you have no other option, using a 2% cash back card like the Citi Double Cash might seem to make sense. However, you’re only making 0.25% on the transaction. $10,000 in tax payments will net you a whopping $25 profit. At that margin, I’m not sure it’s even worth the trouble.
Final Thoughts
I’d only consider paying taxes with a credit card to meet a minimum spend on a new card sign-up bonus. Others might see the spending as a way to meet a large spending threshold but those are only valuable on the margins to specific people so I can’t recommend those options to the masses. The demographic is so specific that it doesn’t make sense for most travelers so I’m not going to go down that rabbit hole in this post.
I still haven’t done my taxes this year so I’m still curious if I’m going to have to pay or get a refund. I do have a card I just signed up for that I’ll use to make that payment if I need to 🙂
Want to comment on this post? Great! Read this first to help ensure it gets approved.
Want to sponsor a post, write something for Your Mileage May Vary, or put ads on our site? Click here for more info.
Like this post? Please share it! We have plenty more just like it and would love it if you decided to hang around and sign up to get emailed notifications of when we post.
Whether you’ve read our articles before or this is the first time you’re stopping by, we’re really glad you’re here and hope you come back to visit again!
This post first appeared on Your Mileage May Vary
