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When you pay taxes using a credit card, there’s no way to waive the credit card’s transaction fees. However, with some creative ways, you can pay taxes and earn many credit card rewards, free nights, elite status with hotels/airlines, and more that can potentially offset those credit card payment fees.
Everyone’s perspectives are different in how they value their money and points. I am not here to argue which method you choose to do this that is better than other methods. The methods discussed in this post are for suggestions only.
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| Photo Credit: IRS |
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Good To Know
Before we begin, let’s make sure you understand these things first:
- Do not cycle through your credit card limits. If you do not have enough credit lines to cover what you owe in IRS taxes, consider paying your tax with multiple credit cards. Do NOT pay tax with a credit card, then pay off the balance quickly and repeat. Banks do not like that.
- There are no cash advance fees when you pay IRS tax using a credit card.
- When you pay IRS tax with a credit card, you do not need to send in the IRS payment voucher.
- Credit card fees are tax-deductible for business taxes, but individual or personal taxes are not eligible.
- If you overpay, IRS will refund any overpayment.
- If you need to cancel any card payment, you must contact the card processor directly, not IRS.
What is the fee for paying taxes with a credit card?
At the time of this writing, credit card fees can range anywhere from 1.87% to 1.98%, depending on the payment service you use.
Remember that there are no cash advance fees when you pay IRS tax using a credit card.
- Pay1040 charges 1.87% with a minimum fee of $2.50.
- payUSAtax charges 1.96% with a minimum fee of $2.69.
- ACI Payments, Inc. charges 1.98% with a minimum fee of $2.50.
What is the fee for paying taxes with a debit card?
Paying taxes with a debit card incurs much more favorable transaction fees.
- ACI Payments, Inc. charges a $2.20 flat fee.
- Pay1040 charges a $2.50 flat fee for consumer or personal debit cards and 1.87% for other debit cards with a minimum fee of $2.50.
- payUSAtax charges a $2.55 flat fee.
Brex Business Cash Account debit card may be a good fit for this, especially when you can also meet the spending requirements to simultaneously earn welcome bonus Brex points. More details are discussed below.
Maximizing Paying Taxes With Credit Cards
Despite the credit card transaction fees, paying IRS taxes with a credit card can be rewarding when strategically working towards a points goal.
Let’s look at each method to maximize your credit card earning potential for paying IRS taxes.
Credit Card Fees Are Tax-Deductible For Business
When you pay your business IRS tax with a credit card and pay the processing fees, those fees are tax-deductible for your business. So while it is not ideal to pay credit card fees to pay your business taxes, keep this in mind that you can write those fees off as business expenses and earn any credit card rewards at the same time.
Unfortunately, credit card fees are not tax-deductible for individual or personal income taxes.
Meet the Minimum Spending Requirement For Credit Card’s Signup Bonus
When you are in the miles and points hobby, you know that you have to spend thousands of dollars as part of the spending requirement to earn a big signup bonus on a credit card offer.
This is the most common reason most people are okay to pay credit card transaction fees to pay taxes. This allows you to meet the minimum spending requirement and receive massive welcome bonus points and miles. Those reward points can yield significantly more values that outweigh the credit card fees.
For example, you applied for the Capital One Venture X Credit Card, and it requires you to spend $4,000 to earn 75,000 bonus Capital One Miles. Suppose the credit card fee for tax payments is 1.87%. In that case, it would cost you about a $75 credit card transaction fee if you pay $4000 in taxes with a credit card. But you will get:
- 150 Capital One Miles on the credit card $75 fee (Venture X card earns 2 miles per dollar spent).
- 8,000 Capital One Miles on the $4,000 tax bill (Venture X card earns 2 miles per dollar spent).
- 75,000 signup bonus Capital One Miles.
In the end, you exchange $75 for 83,150 Capital One Miles. To simplify the math, let’s say the total is 83,000 miles. These miles are Flexible Points that you can either redeem for statement credits ($830), travel through Capital One travel ($830), or transfer to frequent flyer miles for much better values in return that can exceed $830.
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Meet the Minimum Spending Requirements For Brex Account’s Signup Bonus
Brex Business Cash Account is a bank account rather than a credit card account for business owners that have a business registered in the United States as a C-corp, S-corp, LLC, or LLP.
The great news about opening a Brex account is that they do not perform hard inquiries on your credit report, and Brex points are Flexible Points that can be transferred to select frequent flyer programs at a 1 to 1 ratio.
Brex Business Cash Account comes with a debit card for you to spend. With all tax processors charging only a flat fee as low as $2.20 to pay IRS tax with a debit card, you may be able to maximize earning Brex points here. However, please remember that Brex has dynamic spending limits based on your overall deposited amount, meaning you cannot spend more than what Brex allows per day or month. So be sure to contact Brex and ask about that limit before continuing with this approach.
Earn Bonus Miles & Points
Several credit cards offer rewards in cashback, miles, or points when you spend on the card. Paying taxes with that credit card will allow you to earn miles and points toward a dream vacation.
If you have a favorite rewards program, sometimes it makes sense to try to pay taxes with a credit card that earns you several more rewards. I personally prefer to use any card that earns me Flexible Points over a simple cash back card.
For example, if you use your Chase Freedom Flex Credit Card, a simple cash back credit card, to pay for your taxes. You will get only 1% cashback with this credit card, and you will lose in this game. Suppose the credit card fee for tax payments is 1.87%, and you owe $4,000 in taxes. In that case:
- It would cost you about a $75 credit card transaction fee to pay your total IRS tax with a credit card.
- You earn 1% cashback on your $4,075 tax payment: $40 + $0.75 = $40.75
- Your net value is you lose about $35 instead of $75, and that is a terrible deal to go through all these inconveniences just for that much.
Using the same example, if you use Citi Double Cash Credit Card instead:
- You will earn 2% back on your payments: $80 + $1.50 = $81.50
- Your return value comes slightly above the $75 fee you paid out, but you can convert that $81.50 into 8,150 Citi ThankYou (TY) points with the Citi Premier Credit Card to get better values than $81.50 when transferring to loyalty programs.
The gist of it is always aiming for the credit card that gives you a large percent in return for each dollar spent and focusing on Flexible Points earning credit cards.
Furthermore, banks sometimes send out promotions when you register for an offer and spend X amount of cash to get bonus points. These promotions typically are targeted offers, but public offers are also available from time to time.
For examples:
- Hyatt currently has a targeted offer: Earn 5,000 bonus points if you spend $3,000.
- Check if your Chase card is targeted for any bonus spent here.
- For $2000 more, you earn two (2) qualifying elite nights (more below).
- There are credit cards that earn the quarterly 5% bonus in a specific category, such as the PayPal category. You can pay your tax using PayPal through payUSAtax, which accepts PayPal as a payment method, and earn a 5% return with your eligible credit card, such as the Chase Freedom Flex Credit Card.
Earn Hotel Elite Status or Hotel Free Nights
Quite a few hotel credit cards offer opportunities to earn qualifying elite night credits towards the next elite status level or a free night after spending X amount in a year. Here are a few examples:
- Chase World of Hyatt Credit Card
- Earn two (2) qualifying elite night credits after each $5,000 spent.
- Earn Hyatt Category 1-4 Free Night Award after $15,000 spent in a calendar year.
- Chase World of Hyatt Business Credit Card
- Earn five (5) qualifying elite night credits after $10,000 spent in a calendar year.
- Chase Marriott Bonvoy Boundless Credit Card
- Earn one (1) elite night credit for each $5,000 spent on the card.
- American Express Hilton Honors Business Card
- Earn a Hilton Free Weekend Night Reward after $15,000 spent in a calendar year.
- American Express Hilton Honors Surpass Card
- Earn a Hilton Free Weekend Night Reward after $15,000 spent in a calendar year.
- Check out more Hotels Credit Cards Reviews.
Everyone values hotel elite status and free nights differently, but the World of Hyatt program is arguably one of the most favorable hotel programs among the points enthusiasts. Many people are willing to spend on the World of Hyatt Credit Cards to achieve the valuable top-tier Globalist elite status level. The nice thing about this is that you can hit each Hyatt Milestone Reward and earn more free nights and points along the way to Globalist through elite qualifying nights via spending.
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Earn Airlines Elite Status
For this particular method, it’s infrequent to see an airline’s credit card that offers you to spend your way up to elite status for complimentary seat upgrades and priority boarding, to name a few.
- Alaska Airlines targets select cardmembers of Alaska Airlines Credit Card with the opportunity to earn 1,000 elite qualifying miles for every $5,000 spent through December 31, 2022.
- Delta SkyMiles Credit Cards allow you to earn Medallion Qualifying Miles (MQMs) through spending. One example is American Express Delta SkyMiles Reserve Card, which allows you to earn 15,000 Medallion Qualification Miles (MQMs) after you spend $30,000 in purchases on your card in a calendar year, up to four times for Delta’s elite status boost.
- American Airlines allows you to earn Loyalty Points towards the elite status level when you use any American Airlines Credit Cards. You earn 1 Loyalty Point per dollar spent, and remember, this goes with the loyalty point earned, not AA miles earned.
- Check out more Airlines Credit Cards Reviews.
