Best cards to pay your taxes with in 2022 – The Points Guy

Editor’s note: This is a recurring post, regularly updated with new information and offers.

This page includes information about the Discover It Miles that is not currently available on The Points Guy and was not provided by the issuer.

As Benjamin Franklin famously declared, “In this world, nothing is certain except death and taxes.” His words are as true today as when he wrote them over 200 years ago.

And this tax season, you may wonder if it’s worth it to charge your taxes to a rewards credit card to earn cash back or points toward travel as you pay your dues to Uncle Sam. Although you will generally get dinged with service charges and other fees for using a credit card to pay your taxes, it can still be worthwhile for a few reasons.

For instance, you might need to hit a minimum-spending threshold to earn the welcome bonus on a new card or to score a spending-based perk like elite-qualifying miles with an airline card or a free night award with a hotel card. Or maybe you have a card offering 0% annual percentage rate (APR) on purchases for a certain timeframe, so you have some breathing room to pay off your tab.

There are plenty of reasons you might want to pay your taxes with a credit card, but also several caveats. Here’s what you need to know as you consider your options.

These include the general earning rates for the best credit cards to pay taxes. The potential return is the potential earnings based on TPG valuations and maximizing the earnings through the method mentioned in the “Caveat” section — though it doesn’t include the value of any welcome offer you could earn. We’re also assuming a 1.87% fee for paying by credit card.

If you can claim your convenience fees as a tax deduction on your business (speak with your tax advisor about this possibility), your gains would be even greater.

You can also pay your taxes with a debit card. While the fee is minimal, you generally won’t earn valuable travel rewards or cash back unless you have a product like the Amex Rewards Checking debit card, which earns 1 point for every $2 spent on eligible debit card purchases. That spend rate plus other conditions might mean it’s better to use another Amex Membership Rewards-earning card.

The information on the Amex Rewards Checking debit card has been collected independently by The Points Guy. The card details on this page have not been reviewed or approved by the issuer.

Fortunately, the IRS lets you pay your tax bill with a credit card through several third-party payment processors. But be warned: These companies are allowed to tack on their own fees to your payments. You can see a list of these companies and their convenience fees on the IRS website.

The cost of paying taxes with a credit card

When you use a credit card to pay your taxes, the fee is calculated as a percentage of the amount paid. Currently, those fees range from 1.85%-1.98%. So let’s say you owed $10,000 and wanted to pay via credit card. You’d be on the hook for an extra $187-$198 in fees, depending on the service you use.

Many rewards cards extend welcome offers including hundreds of dollars worth of cash back or tens of thousands of points if you spend a certain amount on your new card within a specific timeframe.

The single most significant reason to use a credit card when paying a sizable tax bill is that you can earn a points windfall from your initial spending with a new card. That’s because the value of the points you earn can help offset the cost of fees for using your card for your taxes.

Some travel rewards cards have especially high minimum spending requirements for earning a bonus, so a tax payment might be just the thing to put you over that threshold.

For example, The Business Platinum Card from American Express is currently offering new applicants the ability to earn 120,000 Membership Rewards® points after you spend $15,000 on eligible purchases with the Business Platinum Card® within the first three months of card membership. The Ink Business Preferred Credit Card offers 100,000 Chase Ultimate Rewards points after you spend $15,000 on purchases within three months of account opening.

Spending $15,000 in three months might be tough for some small-business owners. But if you put a $15,000 tax payment on your card to earn 120,000 points on the Amex Business Platinum or 100,000 points on the Ink Business Preferred, you could pay as little as $280.50 in fees (through Pay1040.com).

According to TPG’s latest valuations, American Express Membership Rewards are worth 2 cents apiece if you maximize your points via Amex transfer partners, so you’d be earning up to $300 in potential travel rewards (15,000 points times 2 cents apiece) on your $15,000 tax bill payment — a slight profit when compared to the fees you pay. Chase Ultimate Rewards are also worth 2 cents apiece according to our valuations, so the 15,000 Ultimate Rewards points you’d earn from paying with your Ink Business Preferred would also be worth $300. And that’s just counting the rewards earned on the payment — the bonus points from the welcome offer could be worth $2,400 (Amex Business Platinum Card) or $2,000 (Ink Business Preferred).

That said, you usually only come out ahead using a card to pay taxes when you’re attempting to qualify for a large welcome offer at the same time as you are earning rewards at everyday rates. And if you can otherwise hit the minimum spending requirement without paying taxes with the card (and incurring those fees), it’s better to cut a check to the IRS.

And before you choose to pay your taxes with a credit card, make sure you can pay your card balance off in full since, if you don’t, you can get hit with interest charges and late fees that quickly wipe out the value of any rewards you might earn. Accruing 20-25% interest on your credit card bill will easily negate a 3-4% return on spending through the points you earn.

Meet a credit card spending threshold

Many credit cards offer benefits that trigger after you reach a particular spending threshold. These might be based on the calendar year or your cardmember anniversary, but, in either case, making large tax payments could help you earn these rewards when that amount of spending might be out of range otherwise. For example:

Basically, putting your taxes on the right credit card can help you earn valuable extras like a boost toward elite status, free night awards and more.

Spend toward elite status

Several credit cards allow you to boost your elite status — or earn status outright — through spending on a credit card. Putting a large tax payment on one of these credit cards could help you, such as the following:

• Earn 500 Premier qualifying points (PQPs) for every $12,000 in card spending on the United Business Card, up to 1,000 PQPs in a calendar year, that can be applied up to Premier 1K elite status.
• Delta SkyMiles® Reserve American Express Card and Delta SkyMiles® Reserve Business American Express Card: 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 a total of 60,000 MQMs per card.
• American Airlines credit cards: Earn 1 Loyalty Point per eligible dollar spent on these cards, boosting your elite status through credit card spending.
• World of Hyatt Business Credit Card: Earn five tier-qualifying night credits for each $10,000 spent on the card, helping you attain elite status with World of Hyatt.
• World of Hyatt Credit Card: Receive five tier-qualifying night credits each year you hold the card, plus earn two additional tier-qualifying night credits for each $5,000 spent on the card.

Use multiple cards to maximize earnings

If you have a large tax bill, you don’t have to spend the entire amount on one credit card.

The IRS page explaining credit card payments says you can only use debit or credit cards to make up to two payments per tax period (year, quarter, or month, depending on the type of taxes you’re paying), but that means you could use two different cards to make two different payments.

For example, say that you have a $30,000 tax payment due. You could apply for both The Business Platinum Card from American Express and the Ink Business Preferred Credit Card. By putting $15,000 on the Amex Business Platinum Card, you’d have spent enough to earn the 120,000-point introductory offer. Plus, since the purchase is more than $5,000, you could earn 1.5 points per dollar (up to $2 million of these purchases per calendar year), which means you’d earn 22,500 points on the purchase itself. Then, you could charge the additional $15,000 balance due on the Ink Business Preferred to earn its 100,000-point sign-up bonus and earn an additional 15,000 points for the spending itself (1 point per dollar on everyday purchases).

In this scenario, you’d end up with more than $4,400 in travel rewards, according to TPG’s valuations.

Buy some extra time to pay your taxes

One of TPG’s 10 commandments for earning credit card rewards is never to pay interest charges. It’s paramount that you never bite off more than you can chew. When paying your taxes with a credit card, note when the first day of your new statement period begins on the card you’re looking to use. This way, you may have up to 30 days until your statement closes and nearly 60 days until you must pay off your balance in full.

Some credit cards even offer 0% APR for an introductory period on new purchases, which can provide 12-18 months of interest-free payments on your tax bill. You must pay off the entire balance in full before the promotional period ends or risk exorbitant interest charges.