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!
IRS Credit Card Payment Options
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.
Cash Rewards Credit Cards
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:
Do The Math
Here’s how the math breaks down for a $10,000 tax payment:
- Tax Payments: $10,000
- Pay USA Tax Fees: $187
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.
- Rewards: $223
- Fees: $187
- Profit: $36
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.
Travel Credit Cards
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.
More on Credit Card Tax Payments
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?
More Tax Topics
I’ve seen you write about the Chase 5% cash back. Is there a limit on how much you can earn? If it’s a $500 cap on earnings, I’m not sure it is worth the trouble of another card for me, but, if no cap on earnings, then I need to jump on this. Your tax payment idea is very intriguing. Thanks!
There is no cap for the AARP card, but it is 5% on everything for only six months, so that’s where the trade off comes in.
Thanks for the quick response. This is my first year of being self-employed and making estimated tax payments. I ran some numbers and I believe I am in. My cash back rewards go to our “extra special” vacation fund and this will really boost that this year. Your site is great. Thanks for the helpful information.
Interesting idea! I am all about reward credit cards. Unfortunately, mine just recently stopped giving me a point per mile flown. Now I just get a point for dollars spent…bummer! I might have to look around…
I think many local municipalities will let you pay city taxes via credit card. I have paid my City of Blue Ash, Ohio taxes by credit card for the past three years now.
Also my city does not charge a convenience fee to pay city taxes and I think many other cities do not as well.
The fees was going to be my next question!
Our city doesn’t allow this yet, but it would be wonderful if they did… lucky you!
Yippee! I checked again, and my county finally allows this!
Wish the Canada Revenue Agency took credit cards … it would make my life so much easier!