Preparing taxes is no fun. No fun at all. But paying taxes doesn’t have to be painful. In fact, it can be quite rewarding to pay taxes via credit card. The key is to earn credit card rewards that more than offset tax payment fees. Here’s what you need to know…
Important due dates for 2019 taxes
- January 15 2019: 4th quarter estimated taxes for 2018
- April 15 2019: Final 2018 taxes due
- April 15 2019: 1st quarter estimated taxes for 2019
- June 17 2019: 2nd quarter estimated taxes for 2019
- September 16 2019: 3rd quarter estimated taxes for 2019
- January 15 2020: 4th quarter estimated taxes for 2019
Pay taxes via 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 1.99%: 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 to $2.58 per transaction and credit card fees range from 1.87% to 1.99%. Alternatively, you can pay taxes via the Plastiq Bill Pay service, but that will cost you more: 2.5%.
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 (or more if you make Plastiq bill payments as well). 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. Plastiq: There is a chance of being charged a cash advance fee if you use a Visa card with the Plastiq bill pay service, but Plastiq will warn you about this before you submit the payment.
Unlimited payments via Plastiq: 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.
To pay taxes via Plastiq, use Plastiq’s tax payment screen: plastiq.com/us-taxes.
Fees no longer deductible: Tax preparation fees used to be deductible when itemizing deductions for personal tax returns, but that is no longer the case with the latest tax bill in effect. That said, businesses can treat processing fees as legitimate business expenses which will, in turn, reduce the tax burden to the extent that these charges reduce overall profits.
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 past payments by signing up here: irs.gov/payments/view-your-tax-account.
Reporting estimated payments: Estimated payments should be reported when filing your annual taxes. In my experience, if you make a mistake and forget to report some of these payments, the IRS will catch the error and refund the difference.
Paying end of year taxes: Tell your tax preparer or tax software that you’ll pay via check. Then, browse to the appropriate tax payment site (e.g. Pay1040.com, OfficialPayments.com, or PayUSAtax.com) to pay your taxes. There is no need to mail in the 1040V payment voucher.
Samsung Pay & Google Pay
Some tax payment websites support mobile wallet payments such as Samsung Pay or Google Pay. The US Bank Altitude Reserve card earns 3X for mobile wallet payments, so it should be a great match. However, readers have reported that Samsung / Android Pay (Google Pay) are only supported through Visa Checkout and that this does not trigger the Altitude’s 3X rewards.
Amex Express Checkout
Since Amex is strict about not counting manufactured spending towards new credit card welcome bonuses, tax payments are a great alternative. The nice thing about Amex Express Checkout is that you can use it to make payments even if you don’t have your card. If you recently signed up for a new Amex card and added it to your online account but haven’t yet received the physical card, you should still be able to pay through Amex Express Checkout.
Top 5 reasons to pay federal taxes with a credit card or gift card
A number of credit cards earn cash rewards greater than 1.87%. The best of the best are two cards that earn 3% cash back in your first year of card membership:
- 3% first year:
Since you’ll earn 3% cash back on both the base tax payment and the processing fees with the above cards, your profit should be approximately 1.186% of your tax payment.
- $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)
For more examples of cards that earn better than 2% rewards, see: Best Rewards for Everyday Spend.
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 cheap and easy way to accomplish that.
Here are some of the most valuable current welcome bonuses (click on a card for details; press “Next” to see more offers):
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. Even better, the Amex Blue Business Plus credit card earns 2 Membership Rewards points per dollar. In this case you can essentially buy miles for 0.92 cents per dollar.
- $10,000 tax payment + 1.87% fee = $10,187
- Miles earned at 2X = 20,374
- Cost per mile = $187 / 20,374 = 0.92 cents per mile
- $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 2X airline miles per dollar:
- Amex Blue Business Plus: Earns 2 Membership Rewards points per dollar on up to $50K spend per calendar year. Points can be transferred to a large selection of airline programs or to a few hotel programs.
Cards that offer 1.5X airline miles per dollar:
- Chase Ultimate Rewards. Two no-fee cards in Chase’s lineup earn 1.5 Ultimate Rewards points per dollar for all spend. Pair either one with a premium card (e.g. Sapphire Reserve, Sapphire Preferred, Ink Business Preferred, etc.) to transfer points to several airline or hotel programs:
- Amex Membership Rewards. Amex offers two cards that are capable of earning up to 1.5X. In either case, points can be transferred to a large selection of airline programs or to a few hotel programs.
- Capital One Miles. Capital One offers two cards that earn 2X rewards miles everywhere. These “miles” can be transferred to real airline miles at a rate of 2 to 1.5. This makes the following cards capable of earning 1.5X airline miles everywhere:
- Airline miles. A few airline branded cards offer 1.5 miles per dollar for all spend:
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.
- Southwest Plus, Southwest Premier, or Southwest Business: 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.
- 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 ($2.58 fee): Make a $497.42 payment.
- Pay1040.com ($2.59 fee): Make a $497.41 payment.
- OfficialPayments.com ($2 fee): Make a $498 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.
Which gift cards work?
Most Visa and Mastercards work. Here are some examples:
- Vanilla Visa gift card via Official Payments online
- MetaBank Visa gift cards via Official Payments
- Visa gift card issued by Metabank via PayUSAtax online
- Visa gift card issued by Metabank via Pay1040 online
- Mastercard gift cards from Giftcards.com work with all three processors
Which gift cards don’t work?
- Visa gift cards previously didn’t work with OfficialPayments, but that seems to have changed in 2019
- Some Mastercard gift cards via OfficialPayments have processed as credit cards rather than debit cards in the past (one known example are the US Bank Mastercards typically bought at grocery stores).