Buying miles and points from the IRS with Visa/MasterCard gift cards


UPDATE: This post is out of date.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.

This is the fifth post in a series dedicated to analyzing options for earning points and other rewards when paying federal taxes.  If you haven’t already, please review the earlier posts:

In posts outlined above, I concluded the following:

  • Using a debit card that offers miles for debit purchases can be a great deal since the cost per point will be extremely low (especially for large tax payments).
  • You can earn a small profit by paying with a 2% cash back (or better) credit card.
  • Using a points or miles earning credit card (especially one that offers bonus points for big spend) can be an inexpensive way to buy points or miles, but you should be sure that you’ll use the points or miles for high value redemptions before you invest in them.
  • Another good option is to use a credit card that offers perks for high spend such as elite status, free hotel nights, or companion passes.  Keep in mind, though, that all of these potential perks have one thing in common: they are worth nothing unless you use them.
  • Buying Amex gift cards at a profit involves many hassles and potential problems, so I don’t recommend this route for paying taxes.  And, If you do buy Amex gift cards at a profit, anyway, there are better ways of using them.

Visa/MasterCard Gift Cards

Suppose you want to pay taxes with your credit card in order to earn lots of points and perks, but you’re not thrilled with the prospect of paying almost 2% in credit card processing fees.  Another option is to use your credit card to buy gift cards and then use those gift cards to pay taxes.

The advantage of Visa and MasterCard gift cards is that they can be used as debit cards (see “Gift card PINs“) and therefore incur lower fees for many types of transactions.  Currently, taxes can be paid by debit card for as little as $2.99 per transaction.

The best Visa/MC gift cards are those with the highest denominations.  There are several good ways to use your credit card to buy $500 gift cards.  The post, “Best options for buying $500 Visa gift cards,” outlines the best options I know of.  Fees for these cards range from 0 to about 1% of the card’s value.  In some cases, you may even be able to profit when buying these cards (thanks to a store rewards program, for example).

If you buy gift cards from a grocery store, then make sure to pay with a credit card that offers extra points for grocery store purchases.  Similarly, if you buy gift cards from a gas station, then use a credit card that offers extra points there.  You can find the best options for these categories and more, here: Best Category Bonuses.

Paying Taxes

Here is a chart (provided by the IRS) that shows the fees associated with paying taxes via credit or debit card.  The fees shown below are subject to change, so please see this web page for the latest rates.


As you can see above, fees for debit card use range from $2.99 to $3.95 per transaction.  Each tax payment service will allow two online payments per quarter for estimated taxes and another two for end of year taxes.

The trick with $500 gift cards is that you can’t make a single payment larger than $500.  In fact, you need to make the payment slightly lower than $500.  If you go through, which charges a $2.99 fee, then you can use up a $500 gift card by making a payment of exactly $497.01.  Some services will accept more than two debit payments at a time, but only if you call to make the payments.  Even then, a fee will be charged for each debit card used.

When using $500 gift cards to pay, the fee as a percentage of tax paid at is .6% ($2.99 / $497.01). The other services have just a slightly higher fee of .7%.

Is it worth it?

With a .6% loss in paying taxes this way, you can make a profit by using virtually any rewards credit card to buy Visa or MasterCard gift cards.  Even a 1% cash back card would result in a small profit.  And, you can do much better than 1% back by using one of the credit cards highlighted in my earlier tax payment posts (Buying miles and points and cash from the IRS with credit cards and Buying perks and points from the IRS with credit cards).

So, this looks like a win, but there are other factors to consider.  First, is it worth your time to make payments one at a time with odd amounts such as $497.01?  Is it worth calling and suffering through endless hold music before reciting card number after card number if you have large payments to make?  More importantly, consider the alternatives: Do you have an easy way to cash out the gift cards without a fee or with a smaller fee?  If so, paying taxes with Visa or MasterCard gift cards is not a good choice.


By using the right credit card to buy Visa or MasterCard gift cards, and by maximizing bonus point opportunities, it is possible to do well by paying taxes with gift cards.  And, if you don’t have a ready way to liquidate gift cards, then paying taxes this way is reasonable.  For most of us, though, this approach to paying taxes is not a great idea (now that gift cards are PIN enabled) unless you’ve already maxed out your options.

I will follow up soon with coverage of reloadable prepaid cards.  Do they offer a better alternative?

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