Paying Your Taxes with a Credit Card: A Smart Move for Points and Miles
Imagine turning a hefty tax bill into a free vacation—sounds too good to be true? Paying your taxes with a credit card could make that dream a reality. However, before you dive in, it’s important to weigh the benefits against the costs. If you’re new to traveling nearly for free using points, I recommend checking out our Kickstart Guide for essential tips and strategies.
Why You Should Consider Paying Taxes with a Credit Card
Earn Points: A large tax bill can help you accumulate significant credit card points, especially if you're working toward a lucrative signup bonus.
Meet Minimum Spending Requirements: Many credit cards offer substantial rewards for spending a certain amount within a specified timeframe. If your regular spending won’t cut it, paying your taxes might help you reach that goal.
Is It Worth the Fees?
This depends on a few factors. Paying taxes with a check or bank draft is typically free, but credit card payments incur processing fees. For instance, on a $5,000 tax bill, a fee of around 1.87% (about $93.50) could mean the points you earn aren't worth the cost. If you're earning just 1 point per dollar, 5,000 points might only be worth around $50 when redeemed.
However, if your card offers 2 points per dollar, you'd earn 10,000 points. This could justify the fee, especially if you know how to maximize those miles for valuable travel rewards.
Cost Breakdown of Tax Payments
The IRS has three approved payment processors, each with different fees:
PayUSAtax: 1.82% fee (minimum $2.69)
Pay1040: 1.87% fee (minimum $2.50)
ACI Payments, Inc.: 1.98% fee (minimum $2.50)
If you’re using a service like TurboTax, check the fees beforehand.
Maximize Your Rewards: Which Card to Choose
Choosing the right card can make all the difference:
If You're Working Toward a Minimum Spend: Use the card that helps you reach your goal.
Looking for the Best Card to Sign Up For? Check out our best offers page for a list of the current top options.
Need a Simple Strategy? Consider following our Three Year Plan.
Recommended Cards for Tax Payments:
If you want to maximize the points you earn when paying taxes, choose a card that offers higher points per dollar spent. For example, the Capital One Venture Rewards Credit Card and Capital One Venture X Rewards Credit Card both offer 2 miles for every dollar spent. If you qualify for a business card, the Ink Unlimited provides 1.5 points per dollar spent.
Need a Card Fast? Here’s How
If tax day is approaching and you need a card quickly:
Expedited Processing: Many banks can send you a card quickly if you request expedited shipping after approval.
Instant Card Numbers: Some issuers provide you with a card number immediately upon approval.
Paying Property Taxes with a Credit Card
You might also be able to pay property taxes with a credit card. If your local tax office accepts PayPal Bill Pay, you could do this without extra fees. Otherwise, check with your local office to understand the fees involved.
For detailed information, visit the IRS website or the respective payment processors. Always evaluate whether the fees are worth the points or rewards you could earn.
