You might not like paying taxes, but paying taxes via credit card can be quite rewarding. The key is to earn credit card rewards that more than offset tax payment fees. For example, if you’ve signed up recently for a card that requires large spend to get a big welcome bonus, paying taxes via credit card can be the solution.
Here’s everything you need to know…
- June 27 2020: Visa gift cards weren’t working at Official Payments for a while, but as of June 27, 2020 (if not earlier), Visa gift cards have been working again.
- July 1: Plastiq bill payment fees increase to 2.85%
Important due dates
January 15 2020: 4th quarter estimated taxes for 2019
- July 15 2020:
- Final 2019 taxes due (usually April 15)
- 1st quarter 2020 estimated taxes (usually April 15)
- 2nd quarter 2020 estimated taxes (usually June 15)
- September 15: 3rd quarter 2020 estimated taxes
- January 15 2021: 4th quarter 2020 estimated taxes
Pay taxes via credit card: Key Info
Here is key information you’ll need to know about paying taxes with credit or debit cards:
Credit card fee 1.87% to 1.99% (or 2.85%)
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 $3.95 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: 2.85% (as of July 1 2020).
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 official IRS 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 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 2.85%* 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.
* Plastiq charges 2.5% until July 1 2020.
To pay taxes via Plastiq, use Plastiq’s tax payment screen: plastiq.com/us-taxes.
Are tax payment fees deductible?
Fees are no longer deductible for personal taxes: Tax preparation fees used to be deductible when itemizing deductions for personal tax returns, but that is no longer the case.
Card processing fees are tax deductible for business taxes: This can substantially reduce your net cost of using payment services.
How to view tax payment history
Once you’ve made payments through online processors, Plastiq, or other means, 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.
How to pay 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, PayUSAtax.com, or Plastiq.com/us-taxes) to pay your taxes. There is no need to mail in the 1040V payment voucher.
What happens if you over-pay your taxes?
Overpayments will be refunded: The IRS will refund any overpayment unless you owe a debt on your account.
Do you need to mail in payment vouchers?
No. No payment voucher required. You don’t need to send in a voucher if you pay by card.
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, some cards earn 2 miles per dollar. The Amex Blue Business Plus credit card earns 2 Membership Rewards points per dollar on up to $50K spend per year. And the Citi Double Cash card earns 2 cents per dollar uncapped. Those cash rewards can be converted to Citi ThankYou points and then to airline miles. With these 2X everywhere cards 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:
- Citi Double Cash: Earns 2 cents per dollar, uncapped. Cash rewards can be converted to ThankYou points and when paired with a Citi Premier or Prestige card those points can be transferred to a large selection of airline programs.
- 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, usually at a rate of 2 to 1.5. This means that the following cards are 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 Medallion Qualifying Miles (towards elite status). At $60,000, $90,000, and $120,000 you’ll get another 15,000 Medallion Qualifying Miles.
- Amex Delta Platinum or Delta Platinum Business: Spend $25,000, get 10,000 Medallion Qualifying Miles (towards elite status). At $50,000 spend, get another 10,000 Medallion Qualifying Miles.
- Southwest Plus, Southwest Premier, or Southwest Business: With Southwest, when you earn 125,000 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: $2.00, $2.55, or $2.58 (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.
NOTE: Vanilla Visa gift cards are not recognized as debit cards at PayUSAtax.com.
- Pay1040.com ($2.59 fee): Make a $497.41 payment.
- OfficialPayments.com ($2 fee): Make a $498 payment.
NOTE: The ability to pay with gift cards at OfficialPayments seems to come and go over time. As of March 1 2020, it did not seem to be working for Visa gift cards, but it was working for Mastercard gift cards. Then, as of June 27, 2020 Visa gift cards were working again!
The biggest problem with this is the IRS imposed 2 payments per processor limit. This means that you can liquidate no more than 6 gift cards per type of tax payment. In the past, Official Payments allowed more payments via phone. Recent reports, though, indicate that this is no longer the case.