How to Pay Taxes With a Credit Card (and When You Should)

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Paying the IRS is never fun. But, if you do it right, it presents a fantastic opportunity to earn points and miles by paying taxes with a credit card.

Most Americans only deal with paying taxes once per year on April 15th. However, self-employed and contract workers generally make estimated quarterly tax payments throughout the year. And the next payment for these taxpayers is coming up on September 15, 2020.

In this post, we’ll cover everything you need to know about paying taxes with a credit card so you can build up those points balances.

What is the Fee for Paying Taxes with a Credit Card?

As outlined on the IRS website, there are three options to pay the IRS online with a credit card. Each one of these payment processors charges a different fee for paying federal income taxes depending on the type of card you use.

  1. PayUSAtax — 1.96% fee with a $2.69 minimum
  2. Pay1040 — 1.87% fee with a $2.59 minimum
  3. OfficialPayments — 1.99% fee with a $2.50 minimum

The IRS website also offers a table comparing debit and credit card payment processing fees assessed by each processor at various dollar amounts:

Fees to pay taxes with credit card
2020 Fees to Pay Taxes with a Credit Card (IRS.gov)

Watch out for the minimum processing fees. If you're paying a balance of $125 or less, you're sure to pay a higher processing fee rate than the 1.87% to 1.99% rate listed. To pay the lowest rate of 1.87% through Pay1040, you'll need to pay at least $139.

Generally, you can expect two charges to show up on your credit card statement. The tax payment may show up as “United States Treasury Tax Payment” while the processing fee may be charged as “Tax Payment Convenience Fee”.

All three payment processors (PayUSAtax, Pay1040, OfficialPayments) confirm that the charge will process as a purchase and not a cash advance. So, you don't have to worry about getting hit with extra fees.

Maximizing Rewards with an IRS Credit Card Payment

The size of your federal tax obligation and the credit cards you have are two key components of how to approach your tax payment. Taxpayers looking to maximize the rewards from their federal tax payment should consider the following strategies:

Earn a Sign-Up Bonus When You Pay the IRS with a Credit Card

In recent years, credit card sign-up bonuses have swelled in size. But so have spending requirements. Previously unheard-of 100,000-point sign-up bonuses are much more commonplace. However, these bonuses generally require up to $15,000 in spending across a three-month time frame.

The Ink Business Preferred® Credit Card offers exactly that: 100,000 points after you spend $15,000 on purchases in the first 3 months from account opening. Cardholders might not typically spend that much in a three month period. However, a large income tax bill might boost spending enough to meet the bonus threshold.

For instance, putting a $15,000 tax payment on a credit card will cost $280.50 through Pay1040. However, it can net 100,000 bonus Chase points for new cardholders. The total points earned from such a purchase would be 15,000 + 281 + 100,000 = 115,281 points. Even if you redeem these points for just 1 cent each, that's $1,152.81 in value. That's much more than the $280.50 processing fee paid. And, you can get much more in value from these points by redeeming them through an Ultimate Rewards transfer partner.

Hit a Spending Threshold by Paying Taxes with a Credit Card

For those not looking to sign up for a new credit card, there are still potential milestone spend levels that earn notable travel perks. For example, Hilton Honors American Express Surpass® Card cardholders earn a Weekend Night Reward after spending $15,000 on purchases on your card in a calendar year.

As with the example above, you can pay just $280.50 in fees to make a $15,000 tax payment. The ability to earn a free weekend night at any Hilton portfolio property worldwide at this price can be an absolute steal. Without even leaving the United States, many of Hilton's luxury hotel properties charge rates twice or even three times as high as the processing fee.

Even better, Amex announced that all free weekend night certificates earned between May 1, 2020 and December 31, 2020 can be used any day of the week. Plus, these certificates are valid for 24 months instead of the standard 12 months. That adds even greater flexibility—and therefore value—of earning a Hilton free weekend night right now.

Additionally, the JetBlue Plus Mastercard® offers cardholders the opportunity to spend their way to Mosaic status. You'll have to spend $50,000 in a calendar year on the JetBlue Plus to earn this elite status. However, JetBlue loyalists may find a great deal of value and convenience from this status. A single federal income tax payment might not be enough to reach this high spend threshold, but it could offer a shortcut to getting there.

Pay Taxes with a Credit Card that Earns More Points

Points and miles enthusiasts with no welcome bonus or spend threshold to meet should look to maximize the rewards from their expenses. Federal tax payments are no exception. Unfortunately, no credit card issuers have a bonus category for paying taxes. Therefore, taxpayers should follow the same rules of thumb they typically follow for any non-bonus spend.

For American Express Membership Rewards enthusiasts, The Blue Business® Plus Credit Card from American Express credit card will earn 2X Membership Rewards points on the first $50,000 of spend in a calendar year, then 1 point per dollar above that.

Meanwhile, Chase loyalists have the potential to earn 1.5X Ultimate Rewards Points by paying with a Chase Freedom Unlimited®.

If you plan to use a Freedom Unlimited to pay your federal income taxes and redeem these points through the Chase travel portal, holding a Chase Sapphire Reserve® as well is key.

The Sapphire Reserve allows cardholders to redeem Ultimate Rewards points for 1.5 cents each through Chase's portal. Otherwise, the portal redemption value of Chase points maxes out at 1.25 cents each. Earning 1.5X points redeemable for 1.5 cents each means an overall spend reward of 2.25%. Otherwise, the maximum reward on spending nets to just 1.875%—which is a negligible margin above the lowest processing fee available.

Alternatively, federal tax obligations might offer a great way to top up your points or miles balance. That can be especially helpful if you need to boost a specific preferred hotel or airline program that's not available as a transfer partner of any of the major credit card issuers.

Note: A commenter below mentioned that Citi recently didn't award earnings on a tax payment. We have reached out to Citi for comment. But for now, beware of this data point if you plan to use a Citi card.
Collectors of Citi ThankYou Points who hold both a Citi® Double Cash Card and a Citi Premier Card or Citi Prestige® Card card can earn 2X ThankYou Points paying their taxes with their Citi Double Cash. The Citi Double Cash has no upper limit to how much spend earns 2X points as well.

Earn Cash Back for Paying Taxes with a Credit Card

At a time of travel advisories and restrictions, points and miles may have taken a bit of a backseat. Instead, taxpayers might seek out the best available cashback rewards from credit card spend. Thankfully, there are several credit cards that offer 2% or greater cashback on all purchases.

In addition to the aforementioned Citi Double Cash, the Capital One® Spark® Cash for Business also offers unlimited 2% cashback on all purchases. The American Express Blue Business Cash™ Card also earns 2% cash back on all eligible purchases on up to $50,000 per calendar year, then 1%. Even using the payment processor with the highest fee percentage (OfficialPayments, 1.99%) means those earning 2% cash back will come out ahead from their payment.

Those who hold the Bank of America® Premium Rewards® Credit Card can potentially earn even more than 2% cashback. The card earns 1.5% cashback on general purchases. However, those with significant assets with Bank of America and related accounts earn up to a 75% bonus on these earnings. That means cardholders can earn up to 2.625% on their federal tax payments. Given the high asset requirement to realize that reward level, this option may not be for everyone.

Other Benefits of IRS Credit Card Payments

Tax payments can be split between multiple credit cards. That can be especially helpful for those with high tax obligations. This provides taxpayers the opportunity to earn multiple credit card sign-up bonuses, perhaps one card a piece for those married filing jointly. Or, you can split payments to reach the spend requirement on one sign-up bonus and then work toward a different credit card spend threshold with the remainder of the payment.

You can also pay with a credit card to help manage cash flow. By paying your taxes with a credit card, you can delay the actual payment by a month or longer. For example, imagine a payment is made on the first day of a billing cycle. When the cycle closes a month later, cardholders generally have another month to pay the credit card “on time”. That means the funds are transferred out of your bank account a full two months after the date you made the tax payment.

Should I Pay Taxes with a Credit Card?

Paying taxes with a credit card can provide a (potentially considerable) net gain for taxpayers. But, two conditions need to be met. First, you need to be able to fully pay off the incurred credit card charge when it comes due. Second, the value of the rewards you earn from your payment should outweigh the processing fee.

It doesn't make sense to incur a 1.87% fee if you aren’t getting at least 1.87% worth of credit card rewards on the purchase. If you are smart about which card to use to make a tax payment, you should have no trouble meeting this requirement. 

Will you be paying income taxes with a credit card this year?

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Comments

  • Barbara Bryant says:

    Does the Capital One Venture Credit Card allow payments to the IRS and its standard 2 points per dollar reward?

    • As far as we know, yes! And that’s an especially great option for those that can maximize Capital One miles through transfer partners.

  • I still find it hard to justify additional fees, even though we may come out ahead “net” wise.

  • At least we can get a benefit when payingt taxes…

  • No one likes to pay fees for anything, so it is always based on cost vs. benefit ratio. Use it on transaction when benefit > cost and use it wisely.

  • Retired last year. No more withholding. BOA Premium Rewards cards with top tier Platinum Honors=2.625% cash rebate on charges. State, city and fed taxes paid online are a moneymaker. Except that I have to pay taxes to do it.

    • Very nice! If you have the savings to get that top tier, there’s no better cashback option than that BOA Premium Rewards card!

  • Thank you! I will be sure to use a card with at least 2% cash back for my next tax payment.

  • Of course i will be pay taxes with a credit card. Can be get many hotel points or airlines miles. can be save money if we have a trip.

  • Maybe an unpopular opinion but I dont see the value of payng taxes with a mileage-earning credit card if I’m paying an additional fee for the miles.

    • It depends on what rate you expect to redeem your miles at. If you’d get 1.3cpm on United, you lose but if you’d get 7cpm on American, you win.

  • I always pay everything I can with a credit card, any amount, any expense. Everything adds up to millions, do it.

  • Thanks for the info! Are there certain banks that exclude taxes from earning points/cashback?

  • I always pay taxes–federal, state & property–on credit cards. As a DP, in the past year, I have received City Thank You points for tax payments on a Citi Premier MC and an AT&T and More MC.

  • Yes, I usually use Credit card to pay taxes and then earn my Marriott hotel points. Should be a nice way to get more benefit. haha.

  • My tax preparer mentioned the fees if I used my credit card and suggested avoiding it, but I did not realize the mileage gains.
    I will definitely utilize this approach in paying my (huge) taxes next year. Great post! Thank you.

  • I never thought of paying income taxes with credit card, but i do with property taxes, and i love the benefits from it.

  • Bill from Maine says:

    I have paid my taxes and auto registrations with my credit cards for the last 10 years. In fact, I use a credit card no matter how big (car down payment) or small ($1.00 McDonald’s soft drink). Everything is paid for when the statement comes in.

  • Farid Kassam says:

    Paying taxes by credit card is a good way to rack up points as long as you can pay off the balance in full when the credit card is due.

  • I have been paying my taxes with a credit card for years. Following all the guidelines in the article of course. . It definitely takes the sting out of a large tax bill and you truly are saving a bit of money by doing so.

  • Joel Gilgoff says:

    I’ll be using my and my wife’s Alaska Air credit cards to get 2x 65,000 point sign up bonuses. It’s an amazing deal.

  • Thanks for the useful information. I might use it at some point if my situation changes.

  • Many cards offer a better return than 1.87%. Therefore, I think this is a strategy well worth considering.

  • CHARLES S COLEMAN says:

    JT, will you check up on this and give us the official answer? Based on Dr. Who’s comment, someone is wrong.

  • I guess the key here is to make sure you get more in value back than the fee on paying by card is.

  • tari letherwood says:

    My husband and i used our new citi credit card this year to pay our taxes and earned a nice bonus. You’re right in that it’s not worth unless you’re getting a bonus of some king. Great Blog!

  • Definitely bookmarking this article for future reference. Ashamed I hadn’t thought this out before. Always immediately dismissed paying with a card because of the fees, but this is another reminder that you always have to run the full math. It makes April a great time to pursue a new signup bonus.

  • I paid taxes with my Citi Doublecash, but didn’t receive any cashback. Citi claims that tax payment is excluded. Is anyone else in the same boat? Didnyou have any luck dealing with Citi on this?

    • Oh! That’s quite concerning. I’m just seeing this comment now. Did the earnings never post?

      • No, they haven’t paid. I’ve complained twice, got a letter back saying that everything is in order and got a list of exclusions for cashback. Tax payment doesn’t fit any of the exclusion criteria.

        I’m going to send a proper letter next. Citi’s phone customer support doesn’t seem to be aware of what is or isn’t eligible cashback, just says they will escalate to backoffice.

        It seems like a deliberate change from Citi which they did not communicate.

  • Good advice, I’ve been doing this for quite a while now and it really is worth it!

  • María Arroquy says:

    Muchas gracias como siempre por la info que brindan. Es de gran utilidad para los viajeros que queremos ahorrar. En nuestro caso lo hacemos desde hace unos años justamente para seguir acumulando millas.

  • This is really cool info especially since we don’t spend too much these days ( for credit card opening bonus 🙂

  • Definitely worth hitting a signup bonus minimum spend at only 1.87% when points can be worth much more!

  • This is super helpful, especially with tax date coming up! Really like your last point about being smart about what card to use!

  • Helpful and timely article. Think the Hilton free nights is a great option for spending threshold. Also Delta MQM bonuses on Amex Plat and Reserve cards..

  • I dont use my credit card to pay taxes because of the fee they charge. Still I might use this if I have a card that needs to have charges to get the welcome bonus.

  • It can also be a good deal to use a debit card to pay taxes, if you have a debit card that earns rewards (such as the Discover Cashback Debit). Rewards are smaller on debit cards, but fees for paying taxes with a debit card are much lower.

  • Does anyone know what the maximum amount is that you are allowed to owe without incurring additional penalties?

  • I look forward to paying taxes next year earning a net 0.8% profit. 🙂

  • I wish I could take advantage of this but My cash back cards are not good enough to bake it worthwhile and my points balance together with how long I think it will be before I feel comfortable flying again don’t justify my using as points card. Too bad!

  • Florencia says:

    Very interesting article; It is something I have done many times with the taxes of my country (Argentina). Everything serves to accumulate miles.

  • Paying my taxes tomorrow with my citi dbl cash card! This post is amazing!!! thank you

  • great post! this is just what i needed this weekend!