Would you pay $277 to get $4,000 of free travel? I sure would!
While most people pay taxes directly from their bank account, I paid a 1.85% fee to pay my taxes with a credit card. And we earned over $4,000 in free travel by doing this!
Since 2021, Sandra (aka Zuzu) & I have been getting a ridiculous amount of value from putting all of our normal spend on credit cards. In just the last 12 months, we got $27,000 of free travel from credit card points and miles!
To earn lots of credit card points, it can be a challenge to come up with normal spend to put on a credit card. This is especially true when you get a new credit card that has a big required spend to earn the welcome bonus.
One way to meet a large spend requirement is by paying taxes with a credit card.
Can You Pay Taxes with a Credit Card?
While you have to pay a fee, you absolutely can pay taxes with a credit card. And if the math works out, you can earn a TON of valuable credit card points!
The IRS has three options for paying taxes online with a credit card or with a debit card.
Expect to Pay about 2% Credit Card Fees
If you decide to pay taxes with a credit card, you’ll pay a fee around 2%. If you’ve got a cash back card that pays 2% on all purchases, you might actually turn a small profit!
Get More than 2% in Rewards
But paying taxes with a credit card for points can be much, much more lucrative!
Whether it’s a personal credit card or a business card, the best rewards cards for paying taxes is the one that offers a large welcome bonus.
I recently applied for a Chase small business credit card. Don’t have a business? The same concept applies to personal credit cards like the Chase Sapphire Preferred.
For example, the Chase Sapphire Preferred is a personal credit card which often has a 60k Points welcome bonus. You’ll earn those points if you spend at least $4k in the 1st 3 months after getting the card. I think that’s a great card for people who want to start earning free travel.
Earn Points by Paying Taxes
In my situation, I got the Chase Ink Business Preferred card to use for online advertising. The offer I got was a 100k welcome bonus after spending $15k in the 1st 3 months.
Even though I have a small business, I don’t always have $15,000 of normal expenses every 90 days to put on a credit card.
Fortunately (or unfortunately), I have to pay my federal taxes. Putting my tax bill on my credit card will help me reach the minimum spend to earn the welcome bonus.
Here’s the math of putting my $15,000 tax bill on this credit card:
- Points earned: 115,000 points
- 15k points for spending $15,000
- 100k welcome bonus
- Points Value to Me: $4,370
- Credit card processing fee: $277.50 ($15,000 X 0.185)
Net free travel earned on this 1 transaction: $4,092.50.
We Earned 27% Back in Rewards
On this transaction, I’m earning 29% on my spend and only paying 1.85% to use my new credit card. That’s a net 27% return for Zuzu & me to use toward more free travel!
btw, the math also works if I only pay part of this tax bill with my new credit card. Whether I put $15k of taxes on the card, or only $5k, we’re still getting 27% back as points for free travel.
Reasons to Pay Taxes with Credit Card
In the end, I see 2 big reasons why you might decide to pay taxes with a credit card:
- Earning rewards: The credit cards that I recommend offer cashback, points, or miles on purchases, which can help you accumulate rewards faster when paying taxes. In certain situations like this one, this might more than outweigh the fees you incur.
- Welcome bonuses: If your credit card offers a healthy welcome bonus that requires a certain level of spending within a specific time frame, using the card to pay taxes could help you meet that threshold.
Since Zuzu & I get so much value out of Chase points by converting them to Hyatt points, paying taxes would have been a good idea even without the big welcome bonus.
But the 100,000 extra points made it a no brainer to use the credit card!
Best Credit Card to Pay Taxes
At minimum, you could use a 2% cash back card to pay your taxes and come out slightly ahead. But I suggest that you get a new credit card that offers a big bonus for meeting a minimum spend.
Like I mentioned earlier, I recommend the Chase Sapphire Preferred credit card for most people who want to earn free travel. You can earn a nice chunk of bonus points and you’ll earn more bonus points on many things that you regularly buy!
If you download our Guide to Free Luxury Travel, you’ll learn how to pick the best credit card to pay taxes and for any other situation. Even better, I’m happy to give you a 1 on 1 consultation to help!
It’s crucial to weigh the pros and cons before deciding to pay taxes with a rewards credit card. If the rewards outweigh the processing fees and you can pay off your balance in full each month, it could be a viable option.
And please, do NOT get any credit card unless you will pay off the bill in-full & on-time every month. But if you can follow those 2 rules, it’s pretty easy to earn points and travel for free!
FAQ: Paying Taxes with Credit Card
So after hearing our story, you’re curious about paying taxes with credit cards for points, right?
Let me answer some of the common questions about paying taxes with a credit card. And keep in mind: I’m focused on how you can earn free travel through credit card rewards points and miles and I AM NOT A CPA! This is not legal or accounting advice, just my opinion based on what I’ve done and learned.
Yes, that’s what we just did! Paying taxes with a credit card can be a smart move if you want to earn free travel through points and miles, especially when trying to hit the minimum spend for a welcome bonus on a new card. Just make sure you can pay off the balance right away to avoid interest charges.
While it’s great for earning rewards, watch out for processing fees (usually around 1.85%-2.00%). Also, if you can’t pay off the balance immediately, don’t use a credit card. Interest charges will overwhelm your rewards and the banks will win. Finally, be mindful of your credit utilization ratio, as it could impact your credit score.
Yes, I just did it! The IRS accepts credit card payments through approved payment processors. Just keep in mind those processing fees and potential credit score impacts. In my situation, the rewards far outweighed the processing fees.
Definitely! Feel free to split your tax payment across different cards when paying through an approved payment processor. It’s an excellent way to maximize rewards and hit minimum spends on multiple cards.
You can pay taxes you owe through various methods, like online, by phone, or by mail. Using a credit card through approved payment processors is a great way that we’ve used to earn travel rewards. You can also pay with a bank account using the IRS Direct Pay system, send a check or money order by mail, or set up an installment plan with the IRS.
While you can pay your taxes at the end of the year, doing so may result in penalties and interest for underpayment of estimated taxes throughout the year. It’s generally recommended to pay taxes on a quarterly basis, but you can still earn rewards on those quarterly payments with your credit card.
Yes, you can! To pay your taxes with a credit card when filing by mail, make a payment through an approved payment processor and include the confirmation number on your tax return or payment voucher.
You bet! Many Amex cards let you earn rewards points for tax payments. Just check the terms and conditions to make sure your card qualifies and if there are any limits or restrictions.
Definitely! Many Chase cards also offer rewards points for tax payments. Check the terms and conditions to ensure your card qualifies and if there are any limits or restrictions.
Some Chase cards have trouble with PayTaxUSA. I was able to pay taxes with my Chase Ink card by adding the card in Paypal and then using PayPal as my option to pay taxes.
Remember, you should always check with a financial professional before deciding what to do. This info is not necessarily perfect for your individual situation.
How Credit Card Points Help Us Travel
In 2021, Zuzu & I started earning free travel through responsible use of credit cards. Here are some of the tips we’ve learned and a few of our favorite memories that we’ve made so far!
- How We Travel for Almost Free
- Luxury Hawaii Trip on a a Tight Budget
- Why We Love All Inclusive Resorts
- Best Hyatt All Inclusive Resorts
Want to travel for (almost) free like we do? Click to download our free 14 page eBook that shares our best tips: Guide to Free Luxury Travel!
I’m going to guess you got almost .04 per point by either transfering for an awesome Hyatt redemption, or maybe getting a first class ticket through one of the airlines (but not United, those b@stards have tripled their miles rates for Business/First awards).
Good guess! Across our last 27 stays, we’ve averaged around 3.8 cents per Hyatt point. Some of the stays have been awesome (like you said), but some have been very pedestrian.