It’s Tax Day, and one of the questions I’m asked the most at this time of year is whether paying taxes with a credit card is a good way to rack up points and miles and if so, what credit card to use to maximize your taxes. It would seem like paying your taxes using a points-earning credit card is a no-brainer, but most tax payment services will charge you with a fee of between 1.87-3% to use a credit card, so you have to do the math and calculate whether using a credit card makes sense for you. In general, these fees make the cost of getting points/miles slightly cheaper than buying miles directly from the airlines, but that still makes them expensive.
Tax season means opportunities to earn points and other benefits.
Here is the official government list of approved tax payment vendors, and here are the rates they charge for using a credit card to pay taxes:
- PayUSATax.com: 1.89% for credit cards
- OfficialPayments.com: Generally 2.35% when using American Express, Mastercard, Discover or Visa
- ChoicePay: 1.88% fee for credit card tax payments
- Pay1040.com: 2.35% when using credit cards including American Express, Discover, Mastercard and Visa.
- Business Tax Payment: 2.35% fee when using credit cards
- Value Tax Payment: 1.87% on credit cards
However, there are a few situations where using a credit card can bring you far more valuable rewards that, added together with the miles/points you earn for the transaction, can make sense.
When It Makes Sense
The first is if paying your taxes helps you meet the minimum spending threshold on a new credit card so you earn the full bonus. If spending 2% more to process a credit card payment earns you, say, 100,000 American Airlines miles or 50,000 Chase Ultimate Rewards points, you can potentially get a lot more value from those bonus points than the extra cash you’re shelling out on your tax payment.
The second is when you hope to hit a calendar or cardmember year spending threshold bonus and the additional benefits you receive outweigh the cost of making the charge.
The third is if you have a cash back card that earns you 2% back or more, though depending on the processing percentage, you can still be losing money on this, so be sure you have all the numbers in hand.
Finally, if you can write off the cost of the processing fees as a business expense, then you could be racking up points and eventually getting a chunk off your next tax payment thanks to the deduction, though you’ll still be out of pocket on the fees in the short term.
1. Barclaycard Arrival: With this card, you earn 2x miles per $1 on all purchases and then you can redeem them for travel purchases at the rate of 1 cent per mile, plus get a 10% mileage refund, so in effect, you get a return on spending of 2.27% So if you’re paying through a service where you are only getting charged 1.87% for credit card tax payments, then you’re still coming out ahead.
The British Airways Travel Together Ticket.
2. British Airways Visa: Not only do you earn 1.25 Avios per dollar with this card on non-BA purchases, but when you spend $30,000 in a calendar year, you get a “Travel Together” companion ticket that can be worth thousands of dollars if you redeem for a first or business class British Airways award, and it’s valid from the time you earn in through the end of the following year, so if you earned it with your tax payment, you’d have till December 2015 to redeem it.
3. Southwest Premier Visa: With the Premier version of the Southwest credit card, you can earn 1,500 Tier-Qualifying points per $10,000 you spend in a calendar year up to 15,000 Tier-Qualifying points per year. You reach A-List, the airline’s elite status, with 35,000 Tier-Qualifying points, and A-List Preferred with 70,000 Tier-Qualifying points, so you could put a big dent in your qualification. Not only that, but Rapid Rewards points you earn through purchases on a Southwest co-branded credit card also count toward Companion Pass Qualification, which requires 110,000 qualifying points in a calendar year. If you earned it now, it would be good through December 2015 – that’s 20 months of free flying for your +1.
It might make sense to pay your taxes with a credit card if you earn a perk like the Southwest Companion Pass.
4. Citi Executive AAdvantage World Mastercard: This card is currently offering an all-time high sign-up bonus of 100,000 American miles when you spend $10,000 in 3 months, so using it to pay your taxes could be a good way to hit that threshold and snag the bonus. Not only that, but when you spend $40,000 on this card in a calendar year, you earn 10,000 elite-qualifying miles, which are hard to come by on American without actually flying. Those 10,000 EQM’s can be just the boost you need to get from one elite status tier to the next, and by putting that much spending on my card last year, it helped me maintain my Executive Platinum elite status.
5. American Express Premier Rewards Gold: This card earns category bonuses of 3 points per dollar on flights booked directly with airlines, 2 points per dollar on US supermarkets, and one point per dollar on other transactions, but it also offers a calendar year spending threshold bonus where, when you spend $30,000 in a year, you get another 15,000 bonus points. That potentially brings the everyday earning potential on this card up to 1.5x points per $1 if you can hit that threshold.
6. Freedom: Though this is sort of like the starter Ultimate Rewards-earning credit card from Chase since it has no annual fee and you must have one of the more premium cards like the Sapphire Preferred or Ink Plus if you want to transfer points to any of the program’s 10 transfer partners, it still offers some powerful earning potential thanks to its 5x quarterly rotating bonus spending categories (current ones include restaurants and Lowe’s). But if you were grandfathered into the Chase Exclusives program before it stopped accepting new members, you also earn a 10% bonus on all the points you earned over the course of the year – both bonus and otherwise – so paying your taxes with this card might give you a nice little points boost at the end of the year.
Spending $10,000 can get you a free night at any Hilton,including the Conrad Maldives
7. Citi Hilton HHonors Reserve: This card has not one but two spending threshold bonuses. Cardholders who spend at least $10,000 on the card in a cardmember year (so not a calendar year) get a free weekend night certificate good at any Hilton property, including super-premium ones like the Conrad Maldives – potentially worth hundreds or even well over a thousand dollars depending on where you put it to use. The calendar year spending bonus on this card is Hilton Diamond status when you spend $40,000. Diamond status entitles you to a 50% bonus on base points earned, late check-out, complimentary in-room internet and access to fitness facilities, and 48-hour guaranteed availability among other perks.
8. United Explorer: Not only did this card become much more useful for travelers when it began waiving foreign transaction fees in May, but you can also earn 10,000 bonus award miles each calendar year you spend at least $25,000 on this card, which is a nice little bonus. Plus, if you’re a United elite, by hitting that $25,000 threshold, you waive the airline’s new Premier-Qualifying Dollar requirements for elite status, which range from $2,500 for Silver to $5,000 for Golds, and $7,500 for Platinums. Unfortunately, there is no waiver for 1K’s, who must spend at least $10,000 on United airfares each calendar year to requalify.
9. Fidelity Cash Back: With the Fidelity Cash Back card, you earn 2% back on everyday purchases, including tax payments. So if you are thinking of using this card, I’d suggest going with one of the payment services that charges under 2% to process tax payments with a credit card, and at least you’ll be breaking even or earning a very modest cash back return on your tax payment.
10. Delta SkyMiles Platinum and Reserve Credit Cards from American Express: Both these Delta co-branded cards offer spending-specific perks. First, by spending $25,000 on either, Delta elites get the new Medallion Qualifying Dollars spending requirements on Delta airfares waived (normally they would range from spending $2,500-$12,500 on Delta airfares per calendar year depending on your status level). Not only that, but each also allows you to earn Medallion Qualifying Miles based on spending. With the Reserve, when you spend $30,000 in a calendar year, you can earn 15,000 miles plus a Miles Boost of 15,000 MQMs. Spend $60,000 in that same year and you can earn an additional 15,000 miles and 15,000 more MQMs. So you not only earn 30,000 MQMs for Medallion status but you earn redeemable miles as well. With the Delta Platinum card, you earn 10,000 miles and a Miles Boost of 10,000 Medallion Qualification Miles when you reach $25,000 in eligible purchases during a calendar year. Earn an additional 10,000 miles and another Miles Boost of 10,000 MQMs when you reach $50,000 in eligible purchases the same calendar year.
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