Pay federal taxes by credit card, almost for free

Recently I detailed how to “pay federal taxes via credit card for free.”  The process works, but is fairly complicated: first buy Amex gift cards and get cash back, then use those Amex gift cards to buy $1000 Visa gift cards, then use those Visa gift cards as debit cards to pay taxes at a very low rate.  If you need to use more than two debit cards, then you need to call in to use those cards since the web sites will accept only two. 

By doing all of the above, the cash back you receive offsets the costs of buying gift cards and paying taxes.  But it can be a pain in the you know what.  Luckily, thanks to new developments, there’s now an easier option…

Reduced Amex fees

Last week, a reader named Robert alerted me to the fact that PayUSAtax now charges only 1.89% for American Express credit cards.  Previously, 2.29% was the best available rate for Amex cards.  This is big news because we can now simplify the process and still pay almost nothing for taxes (I’ll detail the steps below).

A full list of service providers that accept credit cards for paying federal taxes can be found here: Pay Taxes by Credit or Debit Card.

TopCashBack joins the game

Another new development worth sharing is that TopCashBack now offers cash back for American Express Gift Cards.  They currently offer 1.5% cash back, which slightly beats Big Crumbs which currently offers 1.4% cash back.  Full details can be found here: More cash back for Amex gift cards.

Pay Taxes inexpensively

Thanks to the two new developments listed above, it is now possible to pay taxes for considerably less than 1% in fees.  Here’s how.

1. Go through BigCrumbs or TopCashBack for cash back

Log into either BigCrumbs or TopCashBack.  Search for American Express Prepaid and Gift Cards.  Click through to the American Express Gift Cards store.

2. Buy gift cards

There are two versions of the American Express gift card shop.  One is intended for personal use and one for business.  Only the personal one is available through TopCashBack, but both are available through BigCrumbs. (Edit: both personal and business cards are available through both portals). The personal site limits orders to $5000 per month whereas the business site limits orders to $75000 per month. 

In order to minimize fees, I recommend buying fewer, larger gift cards.  The limit, per card, is $3000.  For example, if you want to pay about $5000 in taxes, then buy two $2500 cards.  If you need to pay less than $3000, then buy just one card.

Reduce shipping charges by $5.95 by using the promo code AFLQ12013.

Pay with the best rewards credit card available, but do not pay with a Citibank card as Citi treats these purchases as cash advances.  If you’re unsure about whether your credit card company will treat these as regular purchases, call to set your cash advance limit to zero before purchasing gift cards.

3. Use gift cards to pay taxes

Go to PayUSAtax to pay your federal taxes using your American Express gift card as a credit card.  PayUSAtax will charge you 1.89%, so make sure to have that much available on your gift card.  For example, if you have a $3000 gift card, then you can pay as much as $3000 / 1.0189 = $2944.35.  [Note, I haven’t had a chance to test this part out fully yet.  Some merchants put a small hold on a credit card first to verify the card before accepting payment.  If this happens here, you may need to make a slightly smaller payment].

4. Calculate cost

If you go through TopCashBack and buy a $3000 gift card using the shipping promo code, you will pay a total of $3006.95.  Then, you should get $45 back from TopCashBack (it may take a few months to become payable), for a total cost of $2961.95.  With your gift card, you will be able to make a tax payment for $2944.35.  The rest of the gift card will be used to pay the processing fee.

  • Total cost: $2961.95
  • Taxes paid: $2944.35
  • Cost to pay taxes = $2961.95 – $2944.35 = $17.60
  • Cost as a percent of taxes paid = $17.60 / $2944.35 = .6% (i.e. considerably less than 1%)

.6% is not free, but the points or miles earned when buying the gift cards are most likely worth considerably more.  Even with a basic 1% cash back card, you would make a profit! 

If you go through BigCrumbs rather than TopCashBack, the savings are similar.  The total cost to pay $2944.35 in taxes comes to $20.60, which is only .7%.

[Hat tip to Eddie and bluto for correcting my math!]

Related posts and links

Last updated on March 11th, 2013

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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Drew
Guest
Drew

get a paypal business debit and load it with paypal cash relaod cards, then pay the flat debit fee.

FrequentMiler
Guest

Drew: Yep, there are many options here. This is a good one for those who do not have easy access to reload cards

Nate
Guest
Nate

Can you just use a regular Amex to pay directly at payUSAtax and earn miles/points on that charge?

FrequentMiler
Guest

Nate: Yes, you can use a regular Amex to pay as long as you’re willing to fork over the 1.89% fee.

FrequentFlyerUniversity: True!

Frequent Flyer University
Guest

Too bad you didn’t post this earlier. Estimated Q4 payments for 2012 are due today.

PointsCashMiles
Guest

I’d be excitied about this if it didn’t remind me about all the taxes I have to pay this year… Seriously though, thanks for the info, I had already been thinking I needed to research a cheaper way to make my tax payments this year and you saved me the trouble.

TravelBloggerBuzz
Guest

Just made my estimated tax payments, the cost was 1% and much less complicated. I earned a variety of points/miles as I used several cards for VRs. See you Thursday!

Tedd
Guest
Tedd

I’m looking at a tax bill likely well over $20,000 after my wife had a good run on a game show. Is it possible to pay through USAtax with multiple debit cards or to make partial payments?

I’m just curious if I can take advantage of this method if I have such a large bill.

FrequentMiler
Guest

Tedd: Through each online service you can make up to two payments. Checkout some of the links at the bottom of the post to find ways to make large payments.

Eddie
Guest
Eddie

Just a minor quibble, but the max you can pay with a $3,000 gift card is not $2943.30 since $2943.30 plus 1.89% is $2998.93. The correct equation is $3000 / 1.0189 = $2944.35 (assuming there is no temporary hold).

Thanks for your excellent blog and for sharing all of your work!

FrequentMiler
Guest

Eddie and bluto: Thanks! I’ve updated the post with (hopefully) corrected math

bluto
Guest
bluto

Minor quibble: the math in section 3 is slightly off. It should be $3000/1.0189.

Good post. I did not realize Amex was now 1.89% on payusatax.

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[…] Home › Frequent Flyer › How to Pay Federal Taxes and Earn Miles, Nearly Free […]

bluto
Guest
bluto

The 1.89% is tax deductible in certain cases. If it is deductible in your case, then depending on your tax bracket, the after tax cost could be 0% or less than 0%, without even factoring in the cash back or miles you’d earn from your cc.

bluto
Guest
bluto

Is there any way to get Amex GCs larger than $3k?

FrequentMiler
Guest

bluto: correct, thanks for the reminder about the fees being potentially tax deductible! I don’t think you can get cards bigger than $3K

John
Guest
John

can you overpay any amount, even if you dont pay quarterly estimates, and then just get it all back as a refund after you file your 1040?

John
Guest
John

(the prior question assumes you have withholdings on a regular W-2)

daniel
Guest
daniel

a) who pays out faster BigCrumbs or TCB?
b) whats max denomination AMEX GC available on business site?
c) anyone got a cost comparison of 10k tax payment of this method, vs outright buying Vanilla reloads and paying with debit card?

PJ
Guest
PJ

Chase Freedom cards allow you $1500 each card to stock up Visa Vanilla Debit card this 1st quarter at Drugstores. Citi Dividend is also in for $6000 at drug store with 5 % if you plan to use up the $300 annual capped rebate amount. I dont plan to use those gift cards to pay US tax with interest rate so low paying .60 % is still not a good deal if you look at how much interest your idle money is drawing from banks. Instead those gift cards can let me enjoy close to 5 % off on any shopping with credit cards

woonmai quek
Guest
woonmai quek

when i click to order gift card the max is $200 per gift card… do i just order multiples? how to order $3000 gift card?

FrequentMiler
Guest

John: that should work
Daniel: a) I don’t know; b) $3k, I believe; c) VR costs .79% so that method is slightly more expensive, but it’s more certain and immediate than waiting for cash back

FrequentMiler
Guest

PJ: we are blessed to have many great options for earning points!
Woonmai: try a different gift card design. Specifically, try the one on the top, left

DealsSeeker
Guest

Awesome! I’ve been waiting for a post like this that was actually doable! It’s like paying $17.60 for a Starwoods Cat.1 Hotel for 1 night. That’s much less than buying reloads at CVS! Thanks

Kevin
Guest
Kevin

Can I use Amex Platinum to buy Amex gift card to meet the spending requirement for sign-up bonus? Thank you1

trackback

[…] of 1.6% cash back, or you can use my personal referral link. Alternatively, as The Frequent Miler notes, you can get 1.5% cash back from TopCashBack. If you don’t already have an account, […]

NB
Guest
NB

How does this work for salaried folks? Can you elect not to have anything deducted off your paycheck and then just pay it yourself?

FrequentMiler
Guest

Kevin: I thought it would work, but now I’m not sure. My wife hasn’t received any points for her purchase with her Platinum card.

NB: No, but you can take as many exemptions as you are allowed and then pay estimated taxes to fill in the difference. If you accidentally overpay, you will get a check back from the IRS after you file your taxes.

Emile Quek
Guest
Emile Quek

Is this method workable to pay property tax too?

FrequentMiler
Guest

Emile Quek: Whether or not you can do this for property tax depends on whether your town/County/whatever accepts credit cards for tax payments. Some do, some don’t.

Natalie
Guest
Natalie

I attempt to buya gift card with the amount
over $1000. The web site asked for birthday and
Social security number. Can you verify this.

Nic
Guest
Nic

So what box on my federal return do I count the money I paid? I selected “Pay your 1040 Balance Due” on the paytaxusa site. Thanks!

CHRIS
Guest
CHRIS

FM: So, 2 days ago i decide to go through this process via bigcrumbs to purchase 3k gift card. the order went through and i received my gift card last night.
However, until today i am not seeing anything in bigcrumbs site. Is this normal?

CHRIS
Guest
CHRIS

FM: lastly, how can i register my amex gift card?

FrequentMiler
Guest

Chris: I think it is automatically registered to the address it is shipped to (maybe). I’m not 100% sure. You can probably get it registered to a different address by calling the phone number on the back of the card.

CHRIS
Guest
CHRIS

FM: same address is okay, but like those gift card that I purchased, I either have to login and create name + address (giftcard mall) or zip code (vanillavisa). This one, I am not sure since this is my 1st one.

How about bigcrumbs, is it normal? Is there a way we can look our click history like fatwallet does?

Andy
Guest
Andy

@Eddie,
I think you should pay debi card mode for flat $4.95 fee instead of 1.89% fee.

Andy
Guest
Andy

@Eddie,
I think you should pay debit card mode for flat $4.95 fee instead of 1.89% fee.

Chris
Guest
Chris

FM – was your wife able to get points via a purchase via Amex Platinum? I’m thinking about meeting spending requirements this way with the Amex gold 75k business offer.

FrequentMiler
Guest

CHRIS: yes, there’s a way to see your click history in bigcrumbs
Chris: Yes! My wife’s 100K points finally appeared today

Nicole
Guest
Nicole

can this be done for state taxes too or only federal?

FrequentMiler
Guest

Nicole: Good question. I don’t know.

remy
Guest
remy

Do you need to buy a single gift card that covers your entire tax bill or is it possible to pay using multiple AmEx gift cards?

trackback

[…] the usual rate of 1.5%.  This could be a great way to get ahead on paying taxes (see “Pay federal taxes by credit card, almost for free“).  Or, if “almost free” isn’t good enough, see “Pay Federal […]

JoeFromBoston
Guest
JoeFromBoston

Are gift cards considered as a Debit Card for $3.49 fee or are they considered a Credit Card for a 1.89% fee?

FrequentMiler
Guest

JoeFromBoston: Visa and Mastercard gift cards are considered debit cards for a $3.49 fee (now there is a service for only $2.99)

JoeFromBoston
Guest
JoeFromBoston

Thanks. What about American Express Prepaid Gift Cards described in this post? Are they considered credit or debit?

Once again, thanks for all the useful info.

irishesquet
Guest
irishesquet

Does this work for the eGift Cards as well? Just came across this post and don’t think I have enough time to order one via snail mail..

trackback

[…] also tax time in the US and I studied Frequent Miler’s masterful Pay federal taxes by credit card, almost for free. I have a small amount to pay on federal taxes, not worth any particular effort, though it left me […]

Chris P. Jones
Guest

great info! thanks for posting!

i went thru both big crumbs and topcashback and could only locate gift cards from AMEX as high as $500/each. have they discontinued the higher denomination gc’s ($2,000), or did I just miss ’em?

trackback

[…] Pay federal taxes by credit card, almost for free – The Frequent Miler […]

trackback

[…] What you now need to consider if the fees as a percent is worth it as paying online with a credit ca… and among other economic factors. I chose the money order route to test, and am definitely over paying as a fee percentage, but I wanted to report back what is available. […]

E
Guest
E

Does paying prop taxes still work via Amex gift cards?