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It is said that death and taxes are the two constants in life. Although none of us like paying taxes, it’s something that we all must do. As a small business owner, I’m always looking for ways to maximize every dollar that I spend. And I became excited once I learned how to earn credit card rewards for a profit when paying my taxes.
How to Pay Taxes With a Credit Card
Because I’m in business for myself, I pay estimated taxes once a quarter since I don’t have a regular paycheck that withholds taxes automatically. Instead of writing a check or having taxes deducted from my checking account, I choose to pay taxes with a credit card to earn cash back, miles and points.
>>TAX HACK: How to Get a Cash Bonus With Your Tax Return
The IRS allows taxpayers to use these three websites to pay federal taxes for a small fee. Here are the fees charged for debit or credit card transactions:
|Website||Debit Card||Credit Card||Payments Accepted|
|Visa, Mastercard, Discover, American Express, STAR, Pulse, NYCE, Accel, PayPal|
|Pay1040.com||Personal cards $2.58 |
|Visa, Mastercard, Discover, American Express, STAR, Pulse, NYCE|
|ACIPayOnline.com||$2.00 for $1,000 or less |
$3.95 over $1,000
|Visa, Mastercard, Discover, American Express, STAR, Pulse, NYCE, (Digital Wallets for Visa, Mastercard, American Express); Pay With Cash, PayNearMe|
Paying through one of the tax payment services above is not the same as paying your taxes when filing your returns through online tax services. Those fees are higher (2.35% to 3.93%) and can make this an unprofitable transaction.
How to Make Money Paying Your Taxes
Making money by paying your taxes is a simple equation. Since credit card processing fees are about 2%, you’ll make money when you use a credit card that earns more than that.
My Alliant Cashback Visa® Signature Credit Card earns 2.5% cash back on every purchase. By paying my taxes using that credit card at one of the sites above, I’m earning over 0.50% on every tax payment.
Let’s assume that you owe $10,000 to the IRS. Using the Alliant Cashback Visa Signature Credit Card, you’ll earn 2.50% cash back while paying 1.96% in fees to PayUSAtax.
|$10,000 Taxes Owed|
|Alliant CU Cash Back||$250|
Best of all, the credit card processing fees are deductible on your business taxes. So, you’ll earn even more once you claim these expenses on your tax returns.
Which Credit Cards Should You Use To Pay Taxes
You’ll make money paying taxes when you use the right credit cards. The profits can come based on the earnings rate of the card or by meeting the minimum spending requirements on a new credit card.
Credit Cards That Earn More Than 2%
|Alliant Cashback Visa Signature Credit Card||2.50%||Limited to $10,000 per billing cycle|
|Bank of America® Travel Rewards Credit Card||Up to 2.62%||25% to 75% bonus for Preferred Rewards|
|Premium Rewards® Credit Card from Bank of America||Up to 2.62%||25% to 75% bonus for Preferred Rewards|
|Chase Freedom Unlimited®||Up to 2.25%||Transfer to Chase Sapphire Reserve for 50% more value|
|Discover it® Cash Back Credit Card||Up to 3%||All cash back doubled the first year|
Many welcome bonuses are high enough to offset the fees charged when paying taxes with a credit card. Here are a few of the best credit card bonus offers to consider:
|Credit Card||Welcome Bonus||Minimum Spend Requirement|
|American Express® Gold Card||60,000 points||$4,000 within 3 months|
|Capital One® Venture® Rewards||60,000 miles||$3,000 within 3 months|
|Chase Ink Business Preferred® Card||100,000 points||$15,000 within 3 months|
|Chase Ink Business Unlimited® Card||$750||$7,500 within 3 months|
|Citi Premier® Card||60,000 points||$4,000 within 3 months|
What To Watch Out For When Paying Taxes With A Credit Card
Paying taxes with your credit card can be profitable, but it isn’t always the right move. Here are a couple of scenarios to watch out for:
- Paying Interest On An Unpaid Balance. If you don’t pay the balance in full by the due date, you’ll owe interest on the payment. The interest rates on credit cards are high and will offset any rewards you’ve earned.
- High Utilization Rate Can Lower Your Credit Score. When you authorize a large transaction on your credit card, it can lower your credit score if your balance gets too close to your credit limit. This can affect your ability to get approved for a loan or it can result in a higher rate.
- Higher Fees Than Rewards. Make sure that you use the right card when paying your taxes. If the rewards aren’t valuable enough, you’ll pay more in fees than the value you receive.