Complete guide to paying taxes via credit card, 2017 edition

Preparing taxes is no fun.  No fun at all.  But paying taxes doesn’t have to be painful.  In fact, paying federal taxes can be quite rewarding.  The key is to earn credit card rewards that more than offset tax payment fees.  Here’s what you need to know…

pay federal taxes with a credit card

Background

Here is some key information you’ll need to know about paying taxes with credit or debit cards:

Credit card fee 1.87% to 2.25%: The IRS maintains a list of companies that accept credit and debit cards towards tax payments. You can find the current information by clicking here. Currently there are three separate payment processing companies on the list. At the time of this writing, debit card fees range from $2.25 to $2.65 per transaction and credit card fees range from 1.87% to 2%.

Pay taxes credit card options

Two payment limit (per processor): The IRS maintains a table of frequency limits for paying taxes via credit or debit card (found here). In general, they say you can make up to two payments per tax period per type of tax payment. For example, you can make 2 payments every quarter to your quarterly estimated taxes, and you can make 2 payments every year to your annual taxes. Important: In my experience, these limits are enforced per payment processing company. That means that you can really make up to 6 payments per tax period per type of tax payment. An IRS advisor I spoke with several years ago did not think that there would be any problem with making more than 2 payments by using different processors. Since then, I have made more than 2 payments per tax period many times and never had any issues. That is, of course, just my own personal experience. I can’t guarantee that your outcome would be the same.

No cash advance fees: I’m often asked whether credit card companies charge cash advance fees when paying taxes by credit card. The answer is no. All three payment processors agree (via their FAQ pages) that the payment is treated as a purchase not a cash advance. You can find FAQ info here, here, and here.

Unlimited payments: If you’re willing to incur slightly higher fees, you can make an unlimited number of tax payments via the Plastiq bill pay service.  Plastiq usually charges 2.5% to pay bills (including taxes) via credit card, but they occasionally offer lower fees via short term promotions.  For details, please see: Plastiq Bill Payment Service.

Fees may be deductible: The IRS says the following:

  • The fee is deductible for personal tax types as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceed 2 percent of the adjusted gross income can be deducted. For more information, refer to Publication 529, Miscellaneous Deductions.
  • For business tax types, the fee is a deductible business expense.

View tax payment history: Once you’ve made payments through online processors, you may want to see proof that the IRS received the amount you sent. You can view your past payments at any time by signing up with this government website: www.eftps.gov/eftps/. Full details of how to signup and view your past payments can be found here.

Top 5 reasons to pay federal taxes with a credit card or gift card

1. Profit

A number of credit cards earn cash rewards greater than 1.87%.The best of the best is the Discover It Miles card which earns 1.5% cash back and doubles all cash back earned during your first year of card membership. So, if you have the card and you’re still in your first year of card membership, you’ll make a profit by paying your taxes with your credit card. Since you’ll earn 3% cash back on both the base tax payment and the processing fees, your profit should be approximately 1.186% of your tax payment.

Example:

  • $10,000 tax payment + 1.87% fee = $10,187
  • Cash back earned at 3% = $305.61
  • Profit = $305.61 – $187 = $118.61 (1.186% of $10K)

2. Meet minimum spend requirements

If you recently signed up for new credit cards, chances are good that you have to spend thousands of dollars in order to earn the associated signup bonuses. Paying taxes is a fairly cheap and easy way to accomplish that.

3. Buy miles cheaply

Several credit cards offer up to 1.5 miles per dollar for spend. In these cases, a 1.87% tax payment fee means that you can essentially buy miles for 1.22 cents per dollar.

Example:

  • $10,000 tax payment + 1.87% fee = $10,187
  • Miles earned at 1.5X = 15,281
  • Cost per mile = $187 / 15,281 = 1.22 cents per mile

Cards that offer 1.5X airline miles per dollar:

4. Earn valuable big spend bonuses: elite status, free nights, companion pass, etc.

Many credit cards offer bonuses for meeting high spend thresholds. You can find a comprehensive list here: Best big spend bonuses. Here are a few examples:

  • Amex Delta Reserve or Delta Reserve Business: Spend $30,000, get 15,000 bonus miles plus 15,000 Medallion Qualifying Miles (towards elite status). At $60,000 spend, get another 15,000 bonus miles and 15,000 Medallion Qualifying Miles.
  • Amex Delta Platinum or Delta Platinum Business: Spend $25,000, get 10,000 bonus miles plus 10,000 Medallion Qualifying Miles (towards elite status). At $50,000 spend, get another 10,000 bonus miles and 10,000 Medallion Qualifying Miles.
  • Chase Southwest cards: With Southwest, when you earn 110,000 points in a calendar year (including points earned from credit card spend) you get a companion pass good for an unlimited number of flights for the rest of that year and all of the next calendar year.
  • Chase Ritz Carlton Rewards Visa: Earn Platinum status with $75,000 in annual spend. After that, you may be able to buy back status annually for 40,000 points (see this post for details).
  • Barclaycard JetBlue Plus, or JetBlue Business: Spend $50,000 and get Mosaic status which offers free changes and cancellations; free checked bags; expedited security; early boarding; free drinks; enhanced point earnings; and 15,000 bonus points upon qualifying.

5. Liquidate Visa/MasterCard gift cards cheaply

Visa and MasterCard gift cards are debit cards. As such, they qualify for low flat fees for debit tax payments: $2.25, $2.59, or $2.65 (depending upon the tax processor you use). In other words, your cost to liquidate $500 gift cards will be approximately half a percent (0.5% to 0.54%). That’s pretty cheap.

If you use $500 Visa/MasterCard gift cards, then you can pay the following amounts:

  • PayUSAtax.com ($2.65 fee): Make a $497.35 payment.
  • Pay1040.com ($2.59 fee): Make a $497.41 payment.
  • OfficialPayments.com ($2.25 fee): Make a $497.75 payment.

The biggest problem with this is the IRS imposed 2 payments per processor limit. Online, this means that you can liquidate no more than 6 gift cards per type of tax payment. Via phone, though, you may find a tax processor willing to accept multiple debit cards for a single overall payment. Specifically, OfficialPayments is known to accept multiple gift cards via phone. When you make multiple payments over the phone, you do pay the $2.25 fee for each gift card.

According to reader Charles, OfficialPayments treats Vanilla brand gift cards as credit whereas the other processors will treat them as debit.

Clarification, again from Charles:

Vanilla Visa and OneVanilla Visa gift cards issued by Bancorp work as debit at Official Payments.
Dining Anywhere gift cards will not process at Official Payments.
Most (if not all) MasterCard gift cards will not process as debit, but will process as CREDIT through Official Payments.

But another reader says:

Giftcards.com MasterCards post as debit. Just did $3k across the 3 sites with them. Couldn’t get US bank (Safeway MasterCard) to work.

See also: Best options for buying Visa and MasterCard gift 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. If one inadvertently pays the IRS more than one’s annual taxes, that amount would be refunded, I assume? So an overpayment would just be an interest free loan to the federal government?

    • Anyone aware of pitfalls with this? Take the extreme example — you’re owed a refund from the IRS but you “miscalculate” and make some extra tax payments anyway. Obviously you’ll be without the cash until the refund check clears, but does it create any other issues?

      • No downside. I believe it could even prevent you from being assessed underpayment penalties should the IRS audit you and reclassify some income or disqualify some deductions. It seems like this trick could be used with Q4 estimated payments to turn a tidy profit better than any savings account.

    • Good question. I know they changed their terms to say that only credit transactions would earn rewards, but its not clear to me whether that has been enforced. Anyone have data points more recent than October 19 2016 (when the new terms supposedly went into effect)?

      • No more 1% since the last quarter. I used to get 1% back for OfficialPayments transactions but not anymore. PayISATax debit payments had never gotten 1%.

    • I got the 1% from PayUSATax last year but not Pay1040. OfficialPayments.com treats PPBDC same as a credit card and charges the higher fees.

  2. #3 becomes slightly sweeter for those with Business Platinum Amex card who are able to register for the recently announced (targeted?) promotion to earn 2x points on purchases $5,000 or more, thru 4/15/2017.

    One could earn miles for under 1 cent each — $0.009178, to be exact.

  3. For clarification,
    Vanilla Visa and OneVanilla Visa gift cards issued by Bancorp work as debit at Official Payments.
    Gift cards issued by METABANK will not process at OP.
    Most (if not all) MasterCard gift cards will not process as debit but will process as CREDIT through OP.

    • I just used two Metabank Visa debit cards at Official Payments and got confirmation that they were processed, and at the debit rate.

      • That’s great to know that you had success with MetaBank Visa debit cards! Thanks for the DP! Specifically, I tried using the Dining Everywhere MetaBank Visa debit cards that I bought at OfficeMax and they could not be processed through Official Payments. Where did you buy your cards and what type of Visa cards?

    • I was able to use Bancorp Vanilla MC (variable load $20-$500) purchased at Sam’s Club as debit at Official Payments in December.

  4. “The best of the best is the Discover It Miles card which earns 1.5% cash back and doubles all cash back AFTER THE FIRST YEAR of card membership. So, if you have the card and you’re STILL IN YOUR FIRST YEAR of card membership, you’ll make a profit by paying your taxes with your credit card.”

    The bold parts are contradictory. Is it double during the first year or after?

  5. regarding the 2 payment limit, is this limit goes off who’s SS#? In our household, I don’t have my husbands last night but our tax files are in both our names would be we able to process 12 payments or just 6?

    • When filing jointly, the limit is based on the SSN of whoever is listed as the primary tax payer so I don’t think you can get around it that way.

      I’ve added a note saying that you can exceed those limits by paying with the Plastiq bill pay service.

    • I think it’s dead for now. Plastiq used to give 3X points on IRS payments a few months ago, but my most recent attempt a few weeks ago showed as pending in the UTILITIES category, so I cancelled it. Something similar happened to someone on the Access More thread on Flyertalk.

      It’s possible it’s a short-term glitch since some mortgages were coding as utilities and according to the thread Plastiq told the customer they were working on it.

    • I owe over $1000 this year in federal taxes and I’d like to earn 3000 points as well. Please let me know if you find anything out. We have until April!

  6. I’m trying to use up my 5% back debit cards at CVS by Jan 20th. Whats best? 1) Purchasing PayPal reload cards@$3.95ea. After loading the PP cards to my account then paying ‘PAYUSATAX’ with the new PP balance? OR 2)Purchase VanillaOne cards at CVS@$4.95 ea and use them as ‘Credit’@Official Payments? If I go with #2,what do I tell csr,,”I want to make a bunch of $500 ‘credit’ payments for the flat credit fee. Here are my pin #s”?

    • Oh. Just read Charles update so I would have to use VOne as Debit and hope OPayments will take more than 2 cards over the phone. But still, What is the best route to go?,Buying the Paypal reloads or VOnes@ CVS? Thanks!

  7. I just got off the phone with Official Payments, where I wanted to make an ES payment based on multiple Vanilla GCs. The agent took the first one and sent me a confirmation but then she said she can’t take more because they can’t accept 2016 ES payments past January 1 (!) I spoke to a supervisor who confirmed this. The online payments seem to be alive, so I’ll probably pay with a 2% CB card, but does anyone have a suggestion for making phone GC payments work today?

  8. Just want to make sure if I make some payments with a credit card to the IRS let’s say end of the month (January) and file taxes in March 2017, I will get the money back at that time?

    Thanks

  9. Will amex consider a tax payment ineligible for meting minimum spend? Wondering what the risk of having the bonus claw backed is.

  10. Hi!
    Would you be able to make a payment for 2016 taxes now and not file till April? I know I will owe taxes and my time is almost up for a minimum spend, but I will not actually file till April deadline.

  11. Just to clarify, in practice, even if someone made an overpayment from withholdings alone and expected a refund they could go to one of the processors and select “Pay your 1040 Current Tax Return 2016” and pay additional funds through CC, correct? This would be an annual payment and not the same thing as an estimated tax payment, right?

  12. I always knew you could pay with a credit card but never looked into it too deeply because of the credit card fees. I may try this next year. Just have to make sure I don’t withhold too much so as to pay a penalty!

  13. I’ve already filed my taxes and will be getting a refund. Any additional overpayments from now I won’t be getting back until next year correct? or Will I get the overpayment back in a few months? Have a couple minimum spends to make.

  14. So I’m a little late to the game on this, and so looks like paying quarterly taxes aren’t an option. Several people have mentioned paying “annual tax” since we’re past the quarterly payment deadline. My assumption is that means “Form 1040 Current Year – Tax Year 2016” on officialpayments or similar on the other two processors. What form does that payment end up on? Bonus points if you can tell me where it would go in H&R Block 2016 Deluxe (the only thing I can find is quarterly taxes). Also, does this still work since I don’t owe any taxes?

    • Yes, “Form 1040 Current Year – Tax Year 2016”
      I can’t remember if there are any forms where you can list how much you’ve already paid towards the year end taxes. Assuming not, paying online is equivalent to sending a check for what you owe. The difference here is that in your case you are overpaying. The IRS should notice the discrepancy and pay you back for the overpayment.

      Another option for you is to simply begin paying quarterly estimated taxes for 2017 (but it will then be far longer before you get your money back)

  15. Hi Greg,
    I’m just getting into this and am very excited. I have the Chase Inc card which gets 5% back from Staples. Can I buy GC from Staples and pay my tax with them? Thank you.

    • Technically you could, but Staples only carries $200 Visa gift cards in-store and up to $300 online. Online is the better deal with its $8.95 fee.

      So:
      1. Buy $300 visa for $308.95. Earn 1545 Ultimate Rewards points by paying with Ink card
      2. Use $300 Visa to pay $297.75 in taxes (the $2.25 fee takes up the rest).

      Your total fees, then are: $8.95 + $2.25 = $11.20
      Taxes paid: $297.75
      Points earned: 1545

      Is it worth it? Maybe. Points earned are certainly worth more than fees paid, but consider also the time and effort involved.

  16. I just made a payment with OP online and it went successful, thank you all…tomorrow I’ll be making my second payment.

  17. Does anybody know if I can make 2 debit payments with pay1040 and one CC payment of the remaining balance? That would be 3 payments in total..

  18. I made 2 debit payments with OP and 2 debit payments with 1040 using OV cards…they both went through successfully. Where can I check the status to make sure they were both credited?

  19. DP. Just paid using metabank VGC through OfficialPayments phone system. OfficialPayments now has an automated phone system for accepting payments and does not allow more than 2 payments. No way to get to an agent.

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