Posted byon April 14, 2015
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The processing fees to pay your taxes with a credit card are steep, but if you are earning more cash back than the fee you have to pay, it’s a money maker.
I routinely pay taxes with credit cards to earn cash back when I have a card with a sign up bonus. Last year I bought gift cards ahead of time to take advantage of cash back shopping sites to earn cash back paying our taxes.
This year, I don’t have any 5% cash back cards and it’s too late to order gift cards to make a payment. It’s time to do the math on the cards available with regular cash back!
The IRS directs you to use one of the following processing companies to make your tax payments by credit card. Here are the fees that each of the processing companies charges:
The minimum processing fees range between $2.59 to $3.50.
Here are some of the standard cash rewards credit cards that I use frequently. Chances are, if you have been reading My Dollar Plan for awhile, you also have one of these handy:
Here’s how the math breaks down for a $10,000 tax payment:
If you use the Barclaycard Arrival card, then it would be worth: 20,374 miles, which is redeemable for $203 in travel credits to earn an additional $20 in rewards.
If you were working on earning the Barclaycard Arrival Plus $440+ Sign Up Bonus and you need a way to meet the $3,000 spending requirement, it actually becomes much more lucrative!
If you use the Fidelity or Capital One card, the rewards are $203 in the example above. It’s still profitable, but not as much as the Barclaycard.
In addition to cash back, if you are using a specific hotel or airline card credit card for rewards, you’ll need to calculate the value of the rewards for the trip you plan to take. The Starwood card is one of the cards it makes sense for us to pay an annual fee.
I can redeem our Starwood points for 3 cents per point for our holiday ski vacation. At that rate, I can earn $300 in rewards for my $187 in fees. Because the rewards on travel cards redeem for different rates, you’ll have to calculate the value of the rewards.
Fees can be tax deductible. The convenience fee is tax deductible on business tax payments and on qualified personal tax payments.
Quarterly payments. This isn’t just an option for the upcoming tax deadline. You can also make payments all year for your taxes next year.
Taxes on rewards. You do not have to report or pay taxes on cash back rewards for using credit or debit cards. For more see credit card rewards aren’t taxable.
Have you paid your taxes with a credit card before?