AwardWallet receives compensation from advertising partners for links on the blog. Terms Apply to the offers listed on this page. The opinions expressed here are our own and have not been reviewed, provided, or approved by any bank advertiser. Here's our complete list of Advertisers.
Offers for the Hilton Honors American Express Surpass® Card are not available through this site. All information has been independently collected by AwardWallet and has not been reviewed or provided by the card issuer. Some offers may have expired. Please see our card marketplace for available offers.
Offers for Bank of America cards mentioned in this post have been updated as of 12/06/2023
All information about Hilton Honors American Express Surpass® Card has been collected independently by AwardWallet
Paying the IRS is never fun. The silver lining? Owing money on your taxes 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 15. However, many self-employed and contract workers must make estimated quarterly tax payments throughout the year. And the next payment period for these taxpayers is coming up on September 15, 2023.
And there's good news for those who are considering paying taxes with a credit card: The fees have dropped for 2023! The lowest processing rate has dropped from 1.87% to 1.85%. While that may not sound like a significant drop, the savings can really add up. And it makes paying taxes with a 2% cash back card more profitable.
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?
- Maximizing Rewards With an IRS Credit Card Payment
- Other Benefits of IRS Credit Card Payments
- Should I Pay Taxes With a Credit Card?
What Is the Fee for Paying Taxes With a Credit Card?
As outlined on the IRS website, taxpayers have three options to pay the IRS online with a credit card. Each payment processor charges a different fee for paying federal income taxes, depending on the type of card you use.
- ACI Payments, Inc.: 1.98% fee with a $2.50 minimum
- Pay1040: 1.87% fee with a $2.50 minimum
- PayUSAtax: 1.85% fee with a $2.69 minimum
In 2023, payUSAtax decreased its processing fee rate from 1.96% to 1.85% for credit cards, now providing the lowest rate.
The IRS website also offers a table comparing debit and credit card payment processing fees assessed by each processor at various dollar amounts:
|Payment Amount||PayUSAtax - Debit Card Fee||PayUSAtax - Credit Card Fee||Pay 1040 - Debit Card Fee||Pay 1040 - Credit Card Fee||ACI Payments - Debit Card Fee||ACI Payments - Credit Card Fee|
Watch out for the minimum processing fees. If you're paying a balance of $127 or less, you're sure to pay a higher processing fee rate than the 1.85%–1.98% rate listed. To pay the lowest rate of 1.85% through payUSAtax, you'll need to pay at least $146.
Generally, you can expect two charges to show up on your credit card statement. The tax payment may appear as “United States Treasury Tax Payment,” while the processing fee may be charged as “Tax Payment Convenience Fee”.
Will I be charged a cash advance fee for paying my taxes with a credit card?
All three payment processors (payUSAtax, Pay1040, and ACI Payments, Inc.) confirm that the charge will process as a purchase and not a cash advance. 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 approaching 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, some of these bonuses have very high spending requirements across a three-month period.
The Ink Business Preferred® Credit Card offers exactly that: 100,000 points after you spend $8,000 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 an $8,000 tax payment on a credit card will cost $148 through payUSAtax. However, it can net 100,000 bonus Chase points for new cardholders. The total points earned from such a purchase would be 8,000 + 148 + 100,000 = 108,148 points. Even if you redeem these points for just 1 cent each, that's $1,081.48 in value. That's much more than the $148 processing fee paid. And you can get much more value from these points by redeeming them through an Ultimate Rewards transfer partner. For context, AwardWallet users tend to redeem Chase points at 2.01¢ apiece.
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 Free Night Reward after spending $15,000 on purchases on their card in a calendar year.
You can pay just $277.50 in fees to make a $15,000 tax payment. The ability to earn a free night valid at almost 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 two to three times higher than the processing fee.
And don't forget that you'll also earn 45,000 Hilton Honors points — worth around $275, based on recent AwardWallet user redemptions — on the purchase. That value alone almost covers the $277.50 cost of paying your taxes on this credit card.
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 non-bonus spending.
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.
If you want 2x earnings with no cap, consider paying your taxes with the Capital One Venture X Rewards Credit Card or Capital One Venture Rewards Credit Card. Both cards earn an unlimited 2x Capital One miles on every purchase. And, worst case, you can use miles at 1 cent each to pay for travel. That means you're getting at least 2% back on every purchase.
- 2 miles per dollar on all eligible purchases
- 5 miles per dollar on flights when booking via Capital One Travel
- 10 miles per dollar on hotels and rental cars when booking via Capital One Travel
Meanwhile, Chase loyalists have the potential to earn 1.5X Ultimate Rewards points by paying with the 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 travel 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 spending reward of 2.25%. At a 1.25-cent redemption value, the spending nets a 1.875% return — which is just enough to cover 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 hotel or airline program that's not available as a transfer partner of any of the major credit card issuers.
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, which has no annual earning limits.
Earn cash back for paying taxes with a credit card
If you already have enough miles or are short on cash, points and miles may take a backseat. Instead, taxpayers might seek out the best available cash-back rewards from credit card spend. Thankfully, there are several credit cards that offer 2% or greater cash back on all purchases.
In addition to the aforementioned Citi Double Cash, the Capital One Spark Cash Plus also offers unlimited 2% cash back on all purchases. The 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% (issued as a statement credit). Even using the payment processors with the highest 1.98% fee means those earning 2% cash back will come out ever-so-slightly ahead on their payment.
Those who hold the Bank of America® Premium Rewards® credit card can potentially earn even more than 2% cash back. The card earns 1.5% cash back on general purchases. However, those with significant assets with Bank of America and related accounts earn up to a 75% bonus on these earnings, thanks to the Preferred Rewards program. That means cardholders can earn up to 2.625% on their federal tax payments. Given the $100,000 asset requirement to reach that reward level, this option isn't 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 apiece for those married filing jointly. Alternatively, you can split payments to reach the spending requirement on one sign-up bonus and then work toward a different credit card's spending threshold with the remainder of the payment.
You also can 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 pay off (in full) 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 1.85% fee if you aren’t getting at least 1.85% worth of credit card rewards on the purchase. If you know 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?
The comments on this page are not provided, reviewed, or otherwise approved by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.