Should you pay taxes with a credit card?
By now you have either filed or are in the process of getting ready to file your taxes. The lucky ones will end up getting a refund from the IRS, but some people will end up owing money come April 15th.
While most people will end up paying their taxes straight from their checking accounts, there are several payment processors that allow you to use a debit or credit card for a small fee. These companies will charge anywhere from $2.59 to $3.95 to use a debit card or 1.87% to 2.35% for credit card payments.
You might be wondering why anyone would want to use a debit or credit card if it costs more money, but it can be profitable for you to do so if you use a rewards-earning card.
Make sure your rewards outweigh the convenience fee
If you have a rewards credit card that you frequently use, it might be worth using it to pay your taxes, but only if the reward is greater than the convenience fee that you will pay. Here are a few of our favorite cards that have rewards which outweigh the convenience fee:
British Airways Visa – I value British Airways Avios at roughly 1.7 cents per point. Because you will earn 1.25 Avios per $1 spent with the British Airways Visa card you will actually receive a value of 2.1%.
Barclaycard Arrival Plus – Barclaycard Arrival miles are only worth 1.1 cents per mile however the Barclaycard Arrival Plus card earns double miles which means each mile is worth a 2.2% value
Chase Sapphire Preferred – The Chase Sapphire Preferred card earns Ultimate Rewards, which I value at 2.1 cents per points. Your Chase Sapphire Preferred card would give you a return of 2.1%.
Club Carlson Premier Rewards – Club Carlson points are values at just 0.6 each, but you will earn five points for every $1 spent using the Club Carlson Premier Rewards card. That would give you a 3% return on your tax payment.
Starwood Preferred Guest – I value Starwoods points around 2.4 cents per point, which makes it a great option to use for tax payments.
United MileagePlus Club – United MileagePlus miles are valued at around 1.5 cents each. Because you earn 1.5 miles for every $1 spent with a United Mileage Plus Club card you would receive a return of 2.25%.
Meeting the minimum spend on a credit card
There are several rewards credit cards that have relatively low spending requirements in order to receive their sign up bonus. However, quite a few have requirements that can be tough for most families to reach. A good example is the Chase Sapphire Preferred card that requires you to spend $4,000 in the first three months in order to receive the 40,000 Chase Ultimate Reward points.
Paying your taxes using this card would make a lot of sense because it would allow you to help meet your minimum spend. Let’s assume that you have a $4,000 tax payment due to the IRS. Factoring in a processing fee of 1.87% it would cost you $74.80 to make that payment. Because I value Chase Ultimate Reward points at 2.1 cents that would make your signup bonus worth $840. I would be more than willing to pay a $74.80 convenience fee if I knew that I was going to have the opportunity to earn $840 worth of travel rewards.
Most people would automatically discard the idea of using a debit or credit card if they heard there was a fee involved. By doing the math you can discover whether or not it might actually be a benefit to pay the fee in order to accumulate extra credit card rewards. Just make sure that you pay off your statement balance at the end of the month or the rewards that you would have earned would be offset by a finance charge.
