As Tax Day begins to loom, a question I start getting a lot around this time of year is whether it’s worth it to pay your taxes using a points-earning card. Sure, you get the points, but many of the payment services you have to go through in order to do so charge fees that might offset the value of any points you earn. Here are my thoughts—and keep in mind, I am not a tax professional, so before you take any course of action speak to your tax professional and decide what is best for you.
When It Makes Sense
There are several sites that will process your tax payment, but they all charge fees that can negate the value of any points earned. In general, these fees make the cost of getting points/miles slightly cheaper than buying miles directly from the airlines, but that doesn’t make them a bargain.
However, here are a few situations where this might make sense is:
1) When you can write off the cost of the processing fees as a business expense.
2) You need to hit a spend threshold on your credit card and the additional benefits you receive outweigh the cost of making the charge. For example: attaining Hilton Diamond status after $40,000 spend on Hilton Surpass Amex or getting Delta MQMs and threshold mile bonuses after $30,000/$60,000 spend on the Delta Amex Reserve.
3) You have a cash back card, like the PerkStreet 2% card, though depending on fees, you could be losing a bit of money on this.
The Official List of Payment Services
Here is the official government list of approved tax payment vendors.
The IRS’s official list of approved payment services.
Payusatax.com: 1.89% for credit cards or $3.49 for debit cards. They accept Mastercard, Visa, Discover, BillMeLater, Star, NYCE, Pulse and Accel cards.
ValueTaxPayment.com: The fee is $3.49 for debit card payments, and 2.29% on credit cards. They accept Amex credit cards or Visa, Mastercard, Discover, Star, NYCE, Pulse and Accel debit cards.
OfficialPayments.com: Generally 2.35% when using American Express, Mastercard, Discover or Visa , or a $3.95 convenience fee per transaction with debit cards including Accel, NYCE, Pulse and Star. So a $1,000 tax bill will net you 1,000 miles and cost you $23.50 on your Visa, and just 2.1% when using an Amex to pay a federal tax of $100,000 or more. You can also use your Amex Membership Rewards to pay your taxes and convenience fee at the rate of 2,000 points per $10.
Pay1040.com: 2.35% when using credit cards including American Express, Discover, Mastercard and Visa. A $3.89 flat fee per transaction using NYCE, Pulse and Star debit cards.
OfficialPayments’ breakdown of using Membership Rewards to pay taxes and fees.
As in the case of OfficialPayments.com, you can use your Amex Membership Rewards points to pay taxes, but the rate is a pretty unfavorable ratio. I’d only recommend this if you are in a poor financial situation and have no other way to pay your taxes.
Debit Issues
Can you earn miles from using the debit card option? Not to my knowledge. They all prohibit earning miles from tax payments. For example the US US Airways Visa debit card states here that “mileage credit will not be awarded for federal, state or local tax payments, or similar payments to federal, state and local government agencies,” so those cardholders are out of luck.
Another wrench is that to pay your taxes using a credit card or debit card, the IRS requires you to do so in two payments or less, so your debit card may not have the spending limit to cover your tax burden in two payments. Otherwise, you can file for a payment agreement where you pay a set amount each month until your taxes are paid off, but that incurs still more charges and interest.
Overall, paying your taxes with miles/points-earning credit cards is generally expensive, but only you can decide whether it’s worth it based on the value you place on credit card spend and whether you can write off the transaction fees.
Share Your Thoughts!
If anyone has any great ways to get miles for tax payments at a low cost, or knows of cards that are offering spending bonuses for paying your taxes with them, please comment below.