Ultimate guide to paying taxes by credit card, debit card, or gift card.

UPDATE: This post is out of date. Please click here for up-to-date coverage of paying taxes by credit card, debit card, or gift card.


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If you have large estimated or year-end tax payments you’ve probably wondered if you could profit by paying your taxes with a rewards-earning credit or debit card.  The answer is unequivocally “yes”.  The trick is to make sure that the benefits you get outweigh the fees and hassle involved.  In my previous post, “The ultimate guide to paying taxes by credit card, debit card, or gift card. Part 1: Primer” I shared important background information.  In particular, I answered the following questions:

  • What are the fees for paying by credit or debit card?  Quick answer: Click here.
  • Are there limits to how many payments can be made? Quick answer: Yes, you are usually limited to 2 payments, but in Part 1 I offer some work-around tips.
  • Will I be charged a cash advance fee?  Quick answer: No.
  • Are the processing fees deductible?  Quick answer: Maybe.
  • How can I view my tax payment history?  Quick answer:  Click here.

In this post, I’ll cover a number of different ways to pay taxes by credit card, debit card, or gift card. In each case, I’ll suggest the best ways to profit from these approaches.  Note that this series is specifically about paying US federal taxes.  Options for paying state and local taxes vary depending upon where you live.

Pay by credit card

At the time of this writing, fees for paying taxes via credit card are as low as 1.87%.  If you are able to itemize this expense, the effective cost to you will be even less.  There are three reasons that you may profit by using a credit card to pay taxes:

Credit card rewards greater than fee: If you have a credit card that earns rewards worth more than 1.87 cents per dollar (or whatever the current cost is minus the value of your deduction, if any), then you’ll come out ahead by paying taxes with this card.  This would include 2% cash back cards such as the Fidelity Investment Rewards card and point-earning cards such as the Barclaycard Arrival 2X card (which effectively earns 2.2% back towards travel).  And, for those who highly value airline miles, a card like the United MileagePlus Club card (which earns 1.5 miles per dollar) may make sense.

Signup bonus: Credit card companies routinely offer large bonuses for signing up for new cards, but usually require quite a bit of spend in a short time.  For example, at the time of this writing, there is a 100,000 mile offer for the Citi Executive AAdvantage MasterCard that requires $10,000 spend in three months. Depending upon your situation, paying taxes to meet that spend requirement may make sense.  You will earn both the standard 1 mile per dollar from the payment (or more if the credit card offers more than 1X for all purchases) plus you’ll earn the credit card signup bonus.  A full list of the best current signup bonuses can be found here: bestoffers.frequentmiler.net.

Big spend bonus: Many credit cards offer cardholders bonuses when they reach big spend thresholds.  For example, with the American Express Delta Reserve card, you’ll receive 15,000 bonus miles and 15,000 Medallion Qualifying Miles (towards elite status) when you reach $30,000 in annual spend (and again when you reach $60,000 in annual spend).  Similarly, some credit card companies offer short term incentives to increase spend.  They might target you, for example, with an offer of 15,000 bonus miles if you spend $10,000.  For a list of credit cards with standard big spend bonuses, please see: Best Big Spend Bonuses.

Pay by debit card

Currently, two of the payment processors offer a flat fee of $2.79 for personal debit card payments, and ValueTaxPayment.com currently offers a flat fee of $2.49 (except for MasterCard debit cards for which they currently charge $2.89).  Since prices change often, let’s simply assume that you’ll pay a flat fee of $3 per transaction.  As long as your tax payment is $160 or more, you’ll pay less in fees by paying with a debit card instead of a credit card.  The larger your tax payment, the smaller the debit card fee is as a percent of the total.  Unfortunately, very few debit cards today offer rewards for debit transactions, but there are a few.  Here are the debit cards that currently offer airline mile rewards that will most likely work with tax payments:

  • Suntrust Delta Debit Card: Offers 1 mile per dollar spent.  $75 annual fee plus monthly fees unless you maintain a balance of $3K or more.  This debit card has a $35,000 transaction limit.  UPDATE: I have now heard from a few people who have said that recent tax payments made with this card have not resulted in miles earned.  This might not be a viable option anymore.
  • UFB Direct Airline Miles Debit Card: Offers 1 American Airlines mile per every 2 dollars spent.  There is no annual fee, but there is a $1500 transaction limit.

I haven’t yet personally used either card to pay taxes, but multiple readers have informed me that tax payments with these cards have resulted in earned miles.

Pay by gift card: Visa or MasterCard

Visa and MasterCard gift cards are special in that they are also debit cards.  The best Visa/MC gift cards are usually those with the highest denominations because the purchase fee, then, will be smaller as a percent of total value.  The largest denomination Visa and MasterCard gift cards commonly found today are $500.  Fees for $500 Visa and MasterCard gift cards are usually around 1%.  You can use these cards as debit cards to pay taxes online or by phone.  You will be charged a separate payment transaction fee for every debit card you use.  If you want to use more than two cards to pay taxes, please see my prior post “The ultimate guide to paying taxes by credit card, debit card, or gift card. Part 1: Primer” for details of how that might be achieved.

In most cases, your total fees (for buying gift cards and paying taxes) will come to around 1.6%.  While this is lower than the best current fees offered for credit card payments, it is not dramatically lower.  So, I’d only recommend using Visa or MasterCard gift cards for tax payments if you have found a way to buy them with very low fees or no fees, or if you buy them at a merchant in which your credit card earns a category bonus.  For example, if you have a credit card that earns 5% cash back at drugstores and you buy OneVanilla Visa cards with a 1% fee, then you have already profited by 4%, so the additional .6% fee for paying taxes in that case may be worth the cost.  That said, there are other ways to use Visa and MasterCard gift cards that may be both easier and less expensive.  For example, some stores will let you use debit cards to pay bills and/or buy money orders.  And, at Walmart you can use debit cards to reload American Express Bluebird cards for free.  The easiest option, in my opinion, is to pay bills online with Evolve Money (see “Pay bills online with debit and prepaid cards”).

Pay by gift card: American Express

Unlike Visa and MasterCard gift cards, American Express gift cards are not debit cards.  So, if you use an American Express gift card to pay taxes, you will have to pay the credit card processing fee.  On the other hand, it is currently possible to get American Express gift cards with values up to $3000.  And, it is often possible to earn extra airline miles or cash back by buying Amex gift cards through online shopping portals.  At the time of this writing, for example, it is possible to get up to 4 points per dollar or 3% cash back (see this Quick Deal).  For complete details on the ins and outs of buying Amex gift cards please see “Everything you ever wanted to know about Amex gift cards”.  Its very important to read that post since some credit cards will charge a cash advance fee when used to buy Amex gift cards online.  If you are hit with such a fee, the rewards earned from the portal won’t be worth it.  As long as you use a safe credit card, though, you will earn both credit card rewards and portal rewards.  The value of these rewards, in combination, can often far exceed tax processing fees.

The trickiest part of paying with Amex gift cards is figuring out the maximum payment you can make.  Let’s say, for example, that you have a $3000 Amex gift card and you want to use the whole thing for your tax payment.  You can’t make a $3000 payment since the fees will push the total charge above $3000 and the charge will be declined.  Instead, here is a formula to use:

Tax Payment = GiftCardAmount / (1 + per dollar fee)

For example, suppose you have a $3000 gift card and that the current credit card fee is 1.87%.  In that case, the per dollar fee is .0187 and the formula works out as follows:

Tax Payment = $3000 / (1 + .0187)

Tax Payment = $3000 / 1.0187

Tax Payment = $2944.93

Due to rounding, you may have to alter the result by a penny one way or another, but the above formula should get you most of the way there.

Summary

Above, I presented four options for paying federal taxes and earning rewards in the process.  The easiest options are to pay outright with rewards earning credit cards.  The most rewarding option, though, is to use a rewards earning credit card to buy Amex gift cards through a rewards portal and then use those Amex gift cards to pay taxes.  This can be a frustrating experience, though, and may be extremely difficult if you have very large tax payments to make.  I don’t recommend using Visa or MasterCard gift cards to pay taxes because there are better and easier ways to spend down those cards.

About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

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Comments

  1. I made an estimated tax payment in March with my Suntrust Delta and didn’t receive any points. I think the party maybe over at Suntrust..

  2. So if using turbotax, do you simply complete your taxes and transmit to the irs and the seperatley go to payusatax afterwards to make payment?

  3. @Bryanport

    Thanks for the post.

    Suntrust settles ST Debit charges to your SM account monthly on or around the same date each month. Have you checked statement after the beginning of new period?

  4. FM, you mentioned Evolve in this post, but I can’t find the biller for federal or state taxes (CA) on Evolve.

    Also, I read in one of your other posts that the Fed only allows 2 online payments per processor. So that means that if I have a high payment due and am using gift cards, I can only send 2 payments from, say, payusatax before having to use another processor?

    • Dave, I didn’t mean to imply that you could pay your taxes with Evolve Money, just that it can be an easier option for liquidating gift cards. You might be able to pay your local property taxes via Evolve Money, but that would depend upon where you live.
      .
      Regarding the 2 payment limit: yes, that’s right. Please review part 1 for a full discussion about those limits.

  5. Sorry to digress from the subject, FrequentMiler…
    Costco is the best!!!
    You can get a max cashback of $60 with your purchase from any type of pin-enable debit card. Additionally, if you are not happy with this purchase, you can return it and get cash; you keep your $60 cashback though. This is another great method to liquidate those debit gift cards bought from OM, Staples, CVS, or any other merchant with a rewards-earning credit card.
    Example: I buy a tablet and pay with a debit card ( any type of debit card from OM or Staples or CVS…etc). I get a cashback of $60 with my tablet purchase. When I get home, my wife is not happy with my purchase and tells me to return it. I return my tablet to Costco and get cash for the return (Costco only process AMEX).
    You have to pay a membership fee to do this. However, after 11 months ask for a full refund of your membership fee. Easy Peesy
    You do not have to return the item bought at Costco to get the cashback or ask for a full refund of your membership fee. I usually buy 3 hotdogs ($1.50 each) separately and get $60 cashback with each hotdog to liquidate a $200 debit gift card.

  6. I paid all my taxes last year via credit card (fed, state and local property tax). That covered several minimum spends.

    When I did my taxes this year, I found it to be quite a hassle to recover all the payment proofs, mostly because I didn’t remember which processor I used for which payment (always going for the lowest then current cost).

    This year I’ll be doing a much better job of printing and saving the confirmations.

  7. Just include property taxes and insurance with your mortgage payment. let them pay it for you and keep it in escrow…pay the whole deal with Bluebird and you earn points, meet minimum spend, whatever.
    We used to pay our insurances and taxes ourselves and let the money earn interest sitting in our account, or a short term cd instead of escrow, but with todays pitiful interest rates, its barely worth it. Plus our new mortgage gave us a 1/4% better rate for letting them escrow us……and we keep our withholding right so we get a refund instead of a bill for income taxes.

  8. Thanks for the reply FrequentMiler. I would like to someday start a blog just like yours. Maybe you can help me get started on this dream.

    To add to my previous post, the Walmart and Sam’s club discover card can be used to get cashback with any purchase at any retailer that allows cashback with purchase. The cashback amount only depends on the retailer. I usually buy something small (something I was going to buy anywhere) and get cash back with purchase. A lot of retailers allow $100 cashback with each transaction. So shop almost anywhere, get cash back with purchase, and finally pay your bill at Walmart/Sam’s Club with a pin-enable debit card bought at OM, Staples, CVS..etc. with a rewards-earning credit card. It is a another great way for me to liquidate these gift cards. It is another great liquidation method to add to my collection of gift cards liquidation.

  9. ChessMaster1
    So your saying I can take my $100 gift card and go to Costco and buy a hotdog and get $60 cash back each time? I assume this is per transaction, so I could eat and go get another one and receive cash back for the rest of the amount?

  10. Yep, I have done that exactly chris. The $100 gift card has to be a pin-enable debit giftcard(Visa/MC). On some days, I would buy something small and get cash back $60,go back to the store and buy some small again and get cash back, and then finally go back and buy once again something small and get cash back. In about 15m, I have almost liquidated a $200 gift card. It helps though if your wife or anybody else can tag along and does it too with another gift card.

    • ChessMaster1 that is great, I have been having issues with finding a lousy Walmart to load Bluebird, at least this is an alternative to liquidate the few hundred dollars I have in pin gift cards till I can find a Walmart with a money machine. Cause every time I have a cashier try and do it it never works.

      Thanks again

  11. Any reason you failed to mention the soon to be eliminated B of A debit card that earns AS miles? I believe. It still works at this time.

    • I didn’t mention the BOA Alaska Airlines debit card simply because it is scheduled to shut down on 5/31 and its no longer available to new applicants. It is a good option for those who already have it. Daily limit: $5K

  12. Chris,

    You can also liquidate giftcards with the following methods:

    1.Evolve Money
    2.Amazon Payments…My Favorite
    3.Citibank Credit Card…you can pay some types of citi credit cards with a pin-enable debit gift card over the phone

  13. has anyone tried to pay taxes using the paypal debit mastercard? anyone know if that will be processed as debit card? thanks in advance!

  14. Data point: Paid $35,000 (daily limit) for taxes on April 11 on Suntrust debit, Delta pts posed on May 5.

  15. Suntrust miles this month were missing 4000 miles. It appears it might be quarterly tax payment (plus something else I can’t determine).

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